With all the talk about inflation and recession looming around the corner, some industries may be leery of what lies in store for 2001.
But despite signs of a slowing economy, sky-high energy prices, and a reduced employment rate, some local commercial real estate brokers foresee 2001 as a healthy year.
The San Diego Business Journal’s List of Commercial Real Estate Brokerage Firms features 21 firms ranked by the 2000 total dollar value of closed transactions in San Diego County.
Twelve of the companies on The List experienced significant increases in transaction revenues from 1999 to 2000, which some brokers say indicates good fortune in store for this year.
Jay Diskin, president of IPC Commercial Real Estate, Inc., No. 11 on The List, is among the optimistic.
IPC Commercial had a 71 percent increase in value of local transactions from 1999 to 2000, which brought it up two spots from No. 7 on last year’s List.
“I see our company having a better year than last year,” said the CEO, who is also a 20-year veteran broker.
– Many Reasons For Optimism
To support his predictions, Diskin credits several factors.
He said that stabilizing leasing rates and lower interest and absorption rates will help his firm to achieve its goal of generating between $175 million and $200 million in closed transactions for this year.
“There will be more sales than last year because of lower interest rates, leasing will be down and subleasing will be in, because of additional space that is available as a result of companies curbing down on employees and subleasing out space,” he said.
With the local employment rate down to 2.6 percent, many companies have downsized their number of workers and find themselves left with more office or industrial space than needed, especially some high-technology companies that are no longer in business.
This additional space has created a new target market.
“This is the year of subleasing,” said Jason Hughes, principal of Irving Hughes, No. 5 on The List.
“It’s a musical chairs game out there. There’s not a lot of space out there, but there’s always one tenant who wants more space and one tenant who wants less,” he said.
– Market Should Turn Slowly
While Hughes said this is a positive for the industry and will continue to produce business, particularly in the areas of industrial and office space, he sees this market turning at a slower pace.
“2001 will be very strong, but we think it will be slower than last year because of signs in the economy,” he said. “Last year was unprecedented.”
Hughes also said he sees a shift occurring from focusing on the value of the landlord to the value of the tenant.
“Last year, it was about securing space there was a lot of velocity in the market of tenants needing to secure space,” he said.
Hughes said businesses were starting up and scrambling to obtain space, taking whatever rates and space landlords would offer them out of necessity.
But this year the playing field will level out for the tenants.
Hughes said more tenants want to engage in having broker representation.
“Tenants are becoming educated and understand that it is imperative to have unbiased representation on their side,” he said.
– Tenants Become Smart Shoppers
Tenants are shopping around more for space and evaluating, “What type of value am I getting for my money?” said Hughes, and adding this makes it less likely for them to be taken advantage of by high-pressured landlords.
This is good news for brokerage firms that focus on tenant representation and who say that the year of the tenant is now.
“We believe it’s going to be a more tenant-friendly market in 2001 because of the amount of sublease space that’s coming up in the market,” said Bill Fleck, principal of newcomer to The List, The Staubach Co., at No. 9.
The tenant-only representative firm had a tremendous growth in value of transactions from $10 million in 1999 to $198 million in 2000.
Fleck said the advantage of representing solely the tenant is avoiding conflict of interest.
“If you represent both sides, you have to please both sides and this creates conflicts,” he said, in terms of finding both the tenant and the landlord competitive rates and services.
Buddy Norman, also a principal at Staubach, said tenants are going to get red carpet treatment through more incentive offers.
“What we are seeing is more incentives being offered to high-quality tenants,” Norman said. “Those with the market capitalization will be able to garner additional incentives in the market place.”
Free-rent incentives and increased tenant building improvement dollars are some of the big items tenants should look to see later this year.
Fleck and Norman say they don’t foresee any catastrophes ahead, only a general softening in the market and are looking forward to deeper penetration of the city’s industrial and office leasing industrial.
“We’re bullish on the diversity of San Diego’s economy. We think there is always going to be good demand,” Fleck said.
