January 2020 rolled in and every commercial broker in Central Florida was optimistic that 2020 was going to be a fantastic year for our respective businesses. The economy was cranking at a hefty +/- 3% growth rate, lenders were continuing to push money out to commercial borrowers, and interest rates were at all time lows. While Interest rates are still low, loan underwriting is tough and businesses are slowly reopening. While the virus has affected virtually everything we do in some way, commercial real estate brokers could see a substantial increase in transactions in the coming months and years.
Real estate prices will be affected. Hospitality, retail, and office have felt the biggest blow to date. Industrial and multifamily have so far remained relatively unscathed. What does this mean for the commercial brokerage business? While certain property classes will undoubtedly feel a hit in values, the next twelve to eighteen months will determine how we, as brokers, will be affected. There is still a great deal of liquidity out in the market. There is no shortage of buyers. The price they are willing to pay and the perceived motivation of seller’s are the factors yet to be reconciled. Surely, lenders will see an increase in defaults and at some point, will see their owned properties (REOs) increase in numbers. Seller’s motivation increases as we see more distressed properties in the market.
It is too early to tell, to what extent values in certain sectors may continue to decline. As commercial real estate brokers, we have an obligation to keep the best interests of our clients at the forefront in our dealings. Real-time pricing advice to property owners is the best thing we can do to protect them. As we move into the next phase of these crazy economic times, it is not unrealistic to expect that commercial real estate professionals may very well experience substantial increases in transaction volume over the next couple of years.
Article by Bob Rand, CCIM, 2020 CFCAR President-elect
Coldwell Banker Commercial Benchmark
Ormond Beach, FL