Author: Allen Buchanan This post originally appeared on Location Advice and is republished with permission. Learn how to submit your blog to theBrokerList.
We recently discussed pricing
Reduction and the factors that cause it. In short, when there is an excess supply
When there is a shortage of demand, a shortage also known as an imbalance occurs. This imbalance occurs when:
Seesaw – Hedged on either side so that one side is up and the other is down.
In our industrial market, the number of tenants needed to fill vacancies is
You've exceeded your available addresses. OK, one way to absorb the excess is to
The most effective way is to lower your prices, and today we'll take a closer look at the steps to doing so.
Predict when lease rates will soften depending on the stage of the economy
cycle.
Stages of the economic cycle:
1. Few job openings: Initially,
When the market tightens, vacant space is quickly rented out, business expands,
New businesses will move in and the surplus of vacant buildings will decrease.
2. Rising rents:
Vacancies will decrease and landlords will have pricing power. Increased demand
Rising rents. Companies are willing to pay higher rents due to scarcity of real estate.
Available space.
3. Developer Builds: See
Rising rents and falling vacancy rates are attracting developers to the market. New projects
It was launched to take advantage of high demand and favorable leasing terms.
4. Leasing activities
Robustness: New developments and
The economy is booming and leasing activity is at its peak. Companies are rushing to secure space.
Often they agree to higher fees and fewer concessions.
5. Developers overbuild: After all,
Enthusiasm leads to overbuilding.
In a booming market, more space is built than the market can absorb.
6. Increase in job openings:
As new space comes online, the market changes. The supply of available space is
Building supply begins to exceed demand, leading to increased vacancies.
7. Increased time in the market:
With more options available, it will take longer to rent a property.
As companies make their choices over time, the number of buildings remaining on the market will grow.
Best deal.
8. Concessions emerge:
To attract tenants, landlords start offering perks like free rent.
term, tenant improvement allowances, and other incentives. These benefits are
The aim is to make properties more attractive in a competitive market.
By the way, this is where we are.
9. Prices soften:
Vacancies continue to rise, concessions become the norm, and rents
Landlords adjust their price expectations to match the new pricing
Market reality.
10. Demand recovery: End
Over time, lower prices and favorable rental terms will attract new tenants.
Companies take advantage of the softening market to expand or relocate operations.
11. Vacant seats
Absorption: When demand increases,
The surplus of vacant buildings will gradually decrease and the market will begin to balance.
Supply and demand have reached equilibrium.
12. Rents start to rise:
Once vacancies are absorbed and demand stabilizes, rents will begin to rise again.
The market reverted to a landlord market.
The stage for the next economic cycle.
Conclusion:
Understanding these stages
Businesses and investors evaluate the ever-changing industrial real estate market.
Recognizing where you are in the cycle allows you to take informed action.
Negotiating leases, starting new developments,
Or make a strategic investment. In today’s market, leasing rates are softening.
It's important to stay informed and adaptable. The key to success is
Anticipate the next stage of the cycle and prepare to take advantage of it
Make the most of the opportunities it presents.
Allen C. Buchanan, SIOR is Lee &
Orange Associates Commercial Real Estate Services, contact details are
in [email protected] or 714.564.7104.
The website is allencbuchanan.blogspot.com.