I'm often asked if there is seasonality in the commercial real estate business – do you see increases in activity comparable to, say, the residential real estate business?
As we all know, home sales tend to be seasonal. As summer approaches and school ends, families use the summer as a favorable time to relocate.
Commercially, unless there is an economic downturn, we tend to see some peaks and bottoms in rental and sales volumes. As the year turns, we see businesses interested in finding new locations. Our activity tends to taper off ahead of tax season in mid-March to mid-April.
Transaction volume is high through mid-June. The holiday period from mid-June through Labor Day is historically a slower time for transaction volume. Finally, as fall approaches, more people are rushing out of their jobs to get transactions done before the holidays begin and before the year ends.
This year is a little different, though. Things should be slow right now with most businesses in vacation mode. But we've seen a significant uptick in tire-kicking visits this summer.
As I've written ad nauseam in this column, we are faced with a glut of Class A logistics inventory in excess of 100,000 square feet.
While Orange County certainly has more supply than current demand, this trend is more pronounced in the Inland Empire region, where a huge amount of space has come off the market in the past 30 days with five transactions in Huntington Beach and Garden Grove and an equal number in IE.
So what's going on? Here are my thoughts on why.
price
One of the key drivers of the recent increase in activity is pricing: With an oversupply of large logistics space, landlords are becoming more flexible in negotiations.
This is creating attractive opportunities for businesses looking to secure favourable rental terms: reduced rents and attractive perks are encouraging companies to relocate now rather than wait.
Asking rents have fallen by around 18%. Landlords are combining these aggressive rent setting with generous free rent offers and increased agent commissions.
Chinese companies
Another factor is the activity of Chinese companies, who are strategically securing warehouse space to better manage their inventory.
The inauguration of President Trump had a major impact on tariffs, and the increased tariffs on Chinese products have forced these companies to reassess their logistics strategies. With the events of last weekend making the choice clear for November, Chinese third-party logistics companies are preserving as much space as possible to move inventory to the US while they wait to see what the future tariffs will be.
With the election still more than three months away, this is an interesting debt to negotiate.
With global supply chains already facing disruptions, having additional storage capacity close to key markets like Southern California has become even more advantageous. The impact of tariffs, combined with supply chain challenges, has led to a notable increase in leasing activity, especially in the logistics sector.
In the past 30 days, Chinese tenants consumed more than 2 million square feet of space across four transactions.
Potential demand
Finally, there is a lot of pent-up demand. Economic volatility over the past few years, as well as uncertainties such as the pandemic, have caused many businesses to postpone their expansion plans.
Additionally, the inauguration of President Trump and its impact on tariffs also played a key role. The increased tariffs on Chinese imports have prompted many companies to rethink their supply chain and logistics strategies. As a result, companies are now moving forward with plans to secure warehouse space in strategic locations such as Southern California.
This change has led to increased activity among companies looking to mitigate the impact of tariffs and take advantage of current market conditions.
While commercial real estate may not follow the same seasonal patterns as residential real estate, it certainly does have periods of increased or decreased activity. This year, we are seeing an unexpected increase in rentals and sales, in contrast to the usual summer slump. Factors such as attractive pricing, strategic moves by Chinese companies, and pent-up demand are driving this trend.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange and can be contacted at abuchanan@lee-associates.com or 714.564.7104.
First published: July 20, 2024, 5:00 AM