Is Now a Good Time to Buy or Sell an Industrial Building?
Traditionally, spring is one of the busiest times of the year for real estate. Since the coronavirus outbreak—and subsequent stay-at-home orders—led many buyers and sellers to put their moving plans on hold.
Fortunately, as restrictions have eased, we’ve seen an uptick in market activity. Economists expect a rebound in July, August, and September, as fears about the pandemic subside, and buyers return to the market with pent-up demand.
But given safety concerns and the current economic climate, is it prudent to jump back into the real estate market?
Before you decide, it’s important to consider where the industrial market is heading, how it could impact your timeline to buy a property, along with your own company and industry circumstances.
WHAT’S AHEAD FOR THE INDUSTRIAL MARKET?
The economic aftermath of the coronavirus outbreak has been severe. We’ve seen record unemployment numbers, and economists believe the country is headed toward a recession. But people still need a place to conduct business. So what effect will these factors have on the industrial market?
Values Projected to Remain Stable
Many Americans recall our last recession and assume we will see another drop. However, United States online retailers’ saw an increase of 68% of their year-to-year revenue growth, and most of those products where located at the retailers distribution center before being delivered to their customer. Furthermore, a good portion of manufacturing and distribution companies remained open as an essential business, and most of these businesses were able to pay rent and make their loan payments for the months’ of April and May.
Demand for Industrial Properties Will Exceed Available Supply
There has been a shortage of industrial on the market for years, and the pandemic has further hindered supply.
This supply shortage is expected to keep industrial properties constant and potentially increase prices, despite recessionary pressures.
Well respected companies such as Rexford Industrial Realty Inc., LBA Realty, and Brookfield Asset Management, have purchased several properties since April 2020. Each of them found opportunities that could lead to future upside.
Government Intervention Will Help Stabilize the Market
Policymakers have been quick to pass legislation aimed at preventing a surge in foreclosures like we saw in 2008. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress gives companies incentives to remain open by having the Small Business Administration offer Economic Injury Disaster Loan, Payment Protection Plan, SBA Debt Relief and SBA Express Bridge Loans.
The Federal Reserve has also taken measures to help stabilize the real estate market, lower borrowing costs, and inject liquidity into the lending industry. These steps have led to record-low interest rates that should help drive buyer demand.
HOW HAS THE REAL ESTATE PROCESS CHANGED?
As the pandemic hit, the real estate industry, lending institutions, and municipalities across the country revised their processes to adapt to shifting safety standards and economic realities. New ways to conduct meetings through Zoom and Microsoft Teams ware strange at first, but the real estate industry adapted quickly and a good portion of us real estate professionals now feel like a “virtual pro”.
New Safety Procedures
The safety of our clients and our team members is our top priority. That’s why we’ve developed a process for buyers and sellers that utilizes technology to minimize personal contact.
For our listings, we’re holding offering virtual viewings and conducting walk-through video tours. We’re also using video chat to qualify interested buyers before we book in-person showings. This enables us to promote your property to a broad audience while limiting physical foot traffic to only serious buyers.
Likewise, our buyer clients can view more properties online and take virtual video tours to minimize the number of properties they step inside.
The majority of our “paperwork” is also digital. In fact, many of the legal and financial documents involved in buying and selling a property went online years ago. You can safely view and eSign contracts from your smartphone or computer.
Longer Timelines and Higher Financing Standards
The purchase process is taking a little longer these days. Many buyers and sellers are more cautious about their current situation, and with few properties available, it can take more time to match a buyer with the right property.
Furthermore, the closing process has more delays. The top reasons are changing underwriting guidelines for financing, many bankers having limited time because they are processing PPP loans, evolving government guidelines, and appraisers discounting properties more than expected.
IS IT THE RIGHT TIME FOR MY COMPANY TO MAKE A MOVE?
The reality is, there’s no “one size fits all” answer as to whether it’s a good time to buy or sell a property because every company’s circumstances are unique. However, now that you know the state of the market and what you can expect as you shop a building, consider the following questions:
How will a move benefit your company?
Is there a new contract that needs to be fulfilled? Will operating cost be lowered by being closer to common transportation routes? Will higher ceilings help with inventory storage ? Will more dock high door create better efficiencies and work flow? Is it cheaper to buy compared to leasing?
How urgently do you need to complete your move?
Do you have a lease expiring within the next 12 months? With fewer properties on the market and a lengthier closing process, start the conversation and share your building requirements with your commercial real estate broker as soon as possible.
A good portion of industrial properties that exist in Southern California were built before 1980, and building standards have changed dramatically since then. If you need more dock high doors, higher ceilings, more truck parking, or larger yard space, a newer constructed building may be required.
However, if your timeline is flexible, you may be well-positioned to score a deal. We’re seeing more sellers who are in a “situation” and willing to negotiate on terms and price. Talk to us about setting up a search so we can find the right property at the right time.
If your company is eager to sell this year, now is the time to begin prepping your property for the market. A second wave of infections is predicted for the winter, which could mean another lock-down and create more uncertainty. If time passes by, a window of opportunity may be missed.
WHEN YOU’RE READY TO MOVE—WE’RE READY TO HELP
While uncertain market conditions may give pause to some buyers and sellers, they can actually present an opportunity for those who are willing, able, and motivated to make a move.
There will be exciting real estate opportunities coming our way. Right now, only motivated players are out in the market. That means that if your company is in position to buy, your company may find itself in a better position to find a good deal. Today’s record-low interest rates could give a big boost to the purchasing power. In fact, there is still a short window to receive SBA Debt Relief, which means the SBA will pay for the first 6-months of your SBA loan if the loan is fully dispersed by September 27, 2020. This is amazing!
If your company is thinking about selling this year, today, there will be fewer listings to compete against. Acting quickly is important. Buyers are feeling more comfortable with the state of the market, and we are expecting an increase in the number of buyers as we enter summer and while Covid cases decrease.
Let’s schedule a free virtual consultation to discuss your company needs and circumstances. We can help assess options and create a plan that makes everyone feel both comfortable and confident during these unprecedented times.
Sincerely,
Gary Martinez, CCIM SIOR
(714) 905-9383
gary@ashwillassociates.com
DRE Lic# 01318932
Disclaimer: The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.