Happy New Year, readers. I trust your 2023 was productive and I wish you great success for 2024.
As you read this on New Year’s Eve 2023, let’s review what I predicted in January 2023, and see how I did getting my Nostradamus on.
Industrial property give-backs
Then: Third party logistics providers will give back space. For the past three years, to keep up with the demand of online shopping, 3PLs thrived and leased hundreds of thousands of square feet of logistics boxes.
With the “de-inventorying” currently occurring, these providers need fewer square feet. But there’s an issue as many signed term leases which still have time to go.
Therefore, look for much of this excess to enter the market as sublease space.
July 2023 update: We’ve seen a fair amount of give-back as Amazon started the whittling process in late 2022. The push for space seems to be a lot less rabid than it was in 2021 and 2022. I frankly thought we would see more space returning to the market from third-party logistics providers.
December 2023 update: The give-back continues! I recently pulled a list of spaces between 275,000-425,000 square feet in the Inland Empire. Of the 34 available, one-third were subleases, or companies trying to shed space.
Prediction? Nailed it!
Recession? I vote no.
Then: How’s that for contrarian thinking! Here’s how I read the tea leaves. The Fed came out with guns blazing last year with three 0.75% and one 0.5% rate bumps. As we’ve discussed, this increase affects the rate in which banks borrow. The theory is more expensive money will cool a white-hot economy as businesses will re-think borrowing for expansion. I choose to believe in the resiliency in the US economy.
July 2023 update: I nailed this prediction, as our economy has not fallen into recession.
December 2023 update: We will finish 2023 recession-free. This is quite miraculous considering what many were saying last year at this time. No one predicted the Hamas attacks on Israel or 10-year Treasuries topping 5% (briefly in November).
Unrest still rages in the Middle East, but interest rates have settled in the 4% range. Nine of 10 believe we will avoid recession in 2024. I, for one, hope they’re correct.
Prediction? Nailed it!
Return to the office
Then: Much has been written on this subject. We’re starting the third year since all of us were forced to return to our spare bedrooms. Remember that fateful day in March of 2020? I predicted workforces would return to the office this year. Sure, a hybrid model will be employed — such as Tuesday-Thursday will be office days and Mondays and Fridays will be optional work from home.
July 2023 update: Orange County Register articles said vacancy throughout office space had doubled since the pandemic in 2020. The new normal is a hybrid workspace except for a few industries.
December 2023 update: Industries such as wealth management are back. Other typically office-bound crafts like attorneys, real estate professionals and CPAs are not.
Prediction? Nailed it!
Retail will survive
Then: A continuation of the experiences that brought us back to brick and mortar stores in 2022 will continue. How cities choose to eliminate tax basis while at the same time increasing police and fire service remains the tug-of-war.
July 2023 update: Brick and mortar retail continues to it astonish me. I recently bought some items online and returned them at the store vs. dealing with reboxing and shipping them through UPS. I was greeted with lines in the return lanes that would rival 405 traffic on a busy weekend.
December 2023 update: If you visited a mall or retail center during this extended shopping season, you were met with a crush normally reserved for the intersection of the five, 57 and 22. Gridlock indeed. Our economy seems to be settled in to a nice combination of online and in person shopping.
Prediction? Nailed it!
For those keeping score, I got a perfect four out of four. Next week, I’ll proffer my predictions for commercial real estate in 2024. You won’t want to miss that episode. Until then, be safe, my friends.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
