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Real estate forecasts were accurate for at least one CRE broker – Orange County Register

Happy New Year, readers. I hope your 2023 has been productive and I wish you much success in 2024.

As you read this on New Year’s Eve 2023, let’s review what I predicted in January 2023 and see how I managed to get my Nostradamus on.

Industrial property restitutions

SO: Third-party logistics providers will return space. Over the past three years, to meet the demand for online shopping, 3PLs have flourished and leased hundreds of thousands of square feet of logistics boxes.

With “de-inventory” underway, these suppliers need less square footage. But there is a problem because many signed term leases still have time to expire.

Therefore, look for a large portion of this excess to enter the market as sublease space.

July 2023 update: We saw a lot of backlash when Amazon started the discount process in late 2022. The push for space appears to be much less rabid than it was in 2021 and 2022. I honestly thought we’d see more space return to the market from third-party logistics providers.

December 2023 update: The return continues! I recently put together a list of spaces between 275,000 and 425,000 square feet in the Inland Empire. Of the 34 available, a third were subleases or businesses trying to lose space.

Prediction? Nailed it!

Recession? I vote no.

SO: How’s that for contrarian thinking! This is how I read tea leaves. The Fed pulled out all the stops last year with three rate hikes of 0.75% and one of 0.5%. As we mentioned, this increase affects the borrowing rate of banks. The theory is that more expensive money will cool a white-hot economy as companies rethink how they borrow for expansion. I choose to believe in the resilience of the American economy.

July 2023 update: I fulfilled this prediction because our economy did not fall into recession.

December 2023 update: We will finish 2023 without a recession. This is quite miraculous considering what many were saying last year at this time. No one predicted Hamas’s attacks on Israel or 10-year Treasury bonds rising above 5% (briefly in November).

Unrest still rages in the Middle East, but interest rates have stabilized around 4%. Nine out of ten people think we will avoid a recession in 2024. I, for one, hope they are right.

Prediction? Nailed it!

Return to the office

SO: Much has been written on this subject. We are entering the third year since we have all been forced back into our spare rooms. Do you remember that fateful day in March 2020? I predicted that staff would return to the office this year. Of course, a hybrid model will be used: Tuesday to Thursday will be office days and Monday and Friday will be optional work from home.

July 2023 update: Orange County Register articles indicate office vacancies have doubled since the 2020 pandemic. The new normal is a hybrid workspace, with the exception of a few sectors.

December 2023 update: Sectors such as wealth management are making a comeback. Other typically office-related occupations, such as lawyers, real estate professionals, and CPAs, are not.

Prediction? Nailed it!

Retail will survive

SO: The continuation of the experiments that brought us back to physical stores in 2022 will continue. How cities choose to eliminate the tax base while increasing police and fire remains a tug-of-war.

July 2023 update: Physical retail continues to amaze me. I recently purchased items online and returned them to the store rather than dealing with repackaging them and shipping them via UPS. I was greeted with queues in the return lanes that would rival 405 traffic on a busy weekend.

December 2023 update: If you’ve visited a mall or shopping center during this long shopping season, you’ve come across a favorite normally reserved for the intersection of Five, 57, and 22. Gridlock indeed. Our economy seems to have settled into a nice mix of online and in-person shopping.

Prediction? Nailed it!

For those who score points, I got a perfect four out of four. Next week, I’ll present my forecast for commercial real estate in 2024. You won’t want to miss this episode. In the meantime, stay safe, my friends.

Allen C. Buchanan, SIOR, is a principal at Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

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