Good Markets Can Create Challenges
Today’s heated market for industrial real estate has been great. However, it has created its own set of challenges that can lead to indecision and frustration for all parties involved. Let’s look at three scenarios where we see this happening.
Lack of options for buyers/tenants: Historically, when brokers did a property search there were numerous buildings available that would fit the requirement. With a large number of options available, the Client would feel confident the Broker had done a thorough search of the market. Today there may only be one or two spaces available that meet the client’s need. Because there are so few options available, clients sometimes perceive this is a shortcoming of the broker, that the broker is not showing them every available property. Understandably, the Client becomes frustrated and starts searching for space on their own. This leads to frustration on the broker’s end as well. The lesson here is that it is imperative to inform your client of the current market conditions prior to your initial property search. In doing so, you can set expectations and make it easier on all parties.
Current versus historical pricing: With sale prices and lease rates at or near all-time highs, many deals are not getting done. The main reason for this is that buyers are having a hard time adjusting to the new pricing. For so long, it had been a tenant/buyer’s market and they got used to landlords and sellers giving in on the negotiations. The times have changed and now the market has reversed. Buyer’s continue to make below market offers and become frustrated when they are not accepted or get no response. The fact is, if you need to buy or lease a property at this time, be prepared to make a decision, act quickly and pay the new market prices. Otherwise, you will continue the frustrating search for a building.
Multiple offer situations: The tight market and limited options for tenant’s/buyers has created an environment where multiple offers for the same property is a common occurrence. This situation has caused consternation among users who are looking for buildings. Many times, your client’s offer will already be submitted when one or two additional offers are received. Brokers are required by law to submit the latter offer(s) to the seller. At this point the seller can decide how they want to proceed while the person with the first offer thinks they should be the one getting a response. This often leads buyers to think sellers are “shopping their offer” when that is not the case. In reality it is just the dynamics of the existing market conditions. Inventory is low and demand is high, which inevitably leads to this happening on some properties. A good broker can help you navigate through this situation.
While we are enjoying the good market, you can see that it does have its own set of issues. This is uncharted territory for our market and it will be interesting to see how long it lasts.