This is the new unofficial mantra of the real estate industry.
1. Interest Rates
The Federal Reserve has effectively put the breaks on our inflation (and economy) and may have just pulled off the “soft landing” with the stock market looking reasonably healthy. But higher interest rates impact affordability and many buyers are sitting on the sidelines until the current rates become “normal” or they see a rate or price improvement that gives them a reason to act. Either way, I see the majority of tenants/buyers waiting until 2025 to get in the game and start making long-term decisions like signing a 7-year lease or buying office buildings.
2. Navigating Economic Uncertainty
The softening economy, job market, and potential recession have business leaders and employees being cautious about big real estate decisions.
3. Looking Ahead to the 2024 Presidential Election
The presidential contest has a unique knack for stirring up conflict and uncertainty that permeates our society. The potential policy shifts that a new administration could bring hold the power to substantially impact businesses. Consequently, many organizations find themselves in a temporary holding pattern, observing the election’s outcome before charting their course of action. Once a decision is reached at the polls, the economy and bigger real estate decisions are set back into motion.
Buyer and seller do not see values the same way right now. Sellers/Landlords still have recent memories of their record-high property valuations and are not ready to let that dream die so soon. Properties listed at prices based on Cap rates of 5% don’t make any sense when money costs 7.5% to borrow. Buyers/Tenants are looking for a price that factors in the higher borrowing costs and vacancy in the market. This gap in expectations means fewer transactions getting done.
5. Slow Return to Work
Covid sent everyone home with a laptop and the way we use office space has shifted forever. The return to the office with hybrid schedules has been sluggish at best. The return to the office is going to need to be led by the big companies establishing the new work normal. I believe office occupancy will improve over time but will never quite be the same. (Those leasing office space will find sublease discounts galore!)
Amidst an environment of uncertainty, buyers and tenants lean towards indecision, deliberate contemplation, or short-term decisions. For those in the real estate industry, the wise path appears to be one of resilience and patience, with a focus on navigating to the promising horizon of 2025.
Survive until ’25, yall!