While 2016 brought the completion of many transactions, new opportunities and some interesting surprises to the business and commercial industrial real estate sector (November 2016 results), companies and market participants need to keep their eyes on how these changes can affect their local marketplace so they are better prepared to take advantage of opportunities in 2017.
(Click here for a sample of Christopher’s completed transactions).
If you are considering making a real estate decision in 2017, here are a few things to keep in mind:
1. Interest Rates and Vacancy
2. Consumer Confidence vs California Government
3. 1031 Exchange, Potential Changes
Interest Rates and Vacancy
With the potential for tax cuts and increased infrastructure spending on the horizon, as well as GDP growth and employment numbers trending in the right direction, there is strong evidence that interest rates will continue to rise in 2017 following the increase in rates in the 4th quarter of 2016. A rise in interest rates can put downward pressure on the value of investment property as well as affect the affordability of owner/occupant purchasers.
As a result, sellers of real estate need to account for the potential of some pull back in pricing as interest rates rise. Increases in rates can also push some would-be buyers back into the rental market, creating even more demand on an extremely scarce supply; vacancy is sub-2% in just about every Southern California industrial marketplace.
Consumer Confidence vs California Government
While some individuals may have been disappointed by the outcome of the 2016 election, the general consensus within the business community is optimistic.
Generally, business owners view Republican-led government as more favorable to business in two primary areas:
However, in California we still have a Democrat-led state government that seems to want to impose more taxes and create more regulation. While the former puts stress on all businesses, the latter especially impacts industrial businesses as they navigate the regulatory environment.
These regulations can create an environment where more businesses in the manufacturing sector will either:
For sellers and landlords of manufacturing buildings this will create less demand which will affect how much these properties can command when rented or sold. On the flip side, properties constructed for distribution purposes could realize increased demand and pricing appreciation.
1031 Exchange, Potential Changes
There is mounting pressure to make changes to section 1031 of the tax code with the extreme position being to remove the like-kind 1031 tax deferred exchange entirely. This could create tremendous re-evaluation regarding the sale of a property to purchase another, potentially reducing the number of transactions dramatically. It is important to consult your accountant and real estate advisor about the implications of these changes.
Work with an agent who understands the market and your goals
The final point in all of this is that no matter what your situation and the decisions you are considering, it is extremely important that you work with an agent who can properly assist you.
Some of the most important things to be considered when evaluating an agent are:
Christopher J. Destino, SIOR, a Principal at Lee & Associates, is an engaging, responsive professional who enjoys working closely with his clients and helping them succeed.
Additional Market Articles and Reports
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