INSIGHT from pintail

The Futility of Forecasting

We’re not fortune-tellers, but then again...who is?

Predicting the future of the economy and, more specifically, the commercial real estate market, is often futile, which is why our team continues to focus and operate based on what we DO know.

LOTS OF QUESTIONS. NOT SO MANY ANSWERS.

Recently, a colleague attended a real estate conference with an economist as keynote speaker. Upon our colleague’s return to the office we asked, “What insights did the economist have about the future?” “He said he didn’t know what would happen,” our colleague replied. Naturally, we made easy jokes about how the economist was paid to speak (likely billed as a “market forecast”) then admitted he didn’t know what the future would hold.

But after reflection, it made sense. Of course, he didn’t know. No one knows. Perhaps our opinion of the economist ought to have increased for having admitted the obvious.

We would all like to know what the future holds, or so we think. Predicting the future is big business but often of dubious accuracy. At the outset of 2024 we find ourselves considering some of the following questions:

  • Are we in danger of recession or has the Fed truly achieved a soft landing?
  • How resilient is the consumer? After all, US consumer spending accounts for two-thirds of GDP. Will spending hold up?
  • How will mounting debt maturities on commercial real estate affect the market? What about the impact on the banking system?
  • Is the industrial sector overbuilt? Are office buildings doomed?
  • What about the US presidential election?

It’s likely the biggest story for 2024 will be something we’ve not even considered (think another unanticipated event like COVID).

AUTHORED BY

Josh Tew, CCIM

Broker

LET’S FOCUS ON WHAT WE DO KNOW (OR ARE PRETTY SURE OF).

In General:

  • Demographic shifts continue to favor the Southeastern US.
  • Development costs may moderate but will remain high.
  • People need places to live, work, shop, and obtain essential services.
  • Capital slated for investment in CRE is piling up: private equity firms have raised a record amount of capital for CRE investments in 2024. (Blackstone, for example $66B)

Based on our Team’s Recent Experience:

  • Leasing velocity has slowed and developers continue to have headwinds in starting projects.
  • There’s seemingly an uptick in the number of mom and pop, small, and mid-size businesses that are struggling. The reasons, anecdotally: lower income customers are being squeezed, business expenses are higher, debt or funding has evaporated.
  • Smaller transactions (under $3M or so) have been easier than larger ones, mostly because of the flexibility of private capital and better availability of debt for lower risk projects.
  • Owner occupants are bullish on smaller acquisitions (including office) and lenders are accommodative.

OUR TEAM’S TYPICAL SALES TRANSACTION.

An individual or closely held business decides to sell an asset based on personal or business strategy. Perhaps the expected price isn’t quite what it would have been in 2021-2022, but other considerations move the needle more. A high-net-worth individual or well-capitalized investor group buys the asset at a fair price, enjoying a less competitive market than we would have seen 12-24 months ago. The buyer’s immediate return (because of debt markets) is reduced as well, but short-term returns are not driving the buyer’s decisions or business model.

MY PREDICTION, YOU ASK?

So, although we’ve noted the futility of predictions, here’s ours: The next 12-24 months will offer opportunities for well-positioned investors to acquire quality assets at a fair basis and attractive long-term returns, with returns likely compressed in the short-term.

We may not be able to speak definitively about what the future holds, but we have confidence that if we keep our heads down and act on what we know to be true, we can continue to support our clients and partners, helping them to build and realize value in their operations, projects, and portfolios.

MEET THE TEAM

Anna Newton Spiers

Broker Associate

Josh Tew, CCIM

Broker

Monty Todd

Broker

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