If this is a buyer’s market, where are the buyers?
2012 is quickly coming to a close, and once again a robust economic recovery has failed to materialize.
Despite—or perhaps because of—the lingering recession, many commercial and industrial real estate owners who have had their properties on and off the market for some time are getting frustrated by their lack of success, while other properties sell.
And they are asking the same questions: “Why won’t my property sell? I know the market is not what it used to be, but even still … where are the buyers?”
Sometimes these are not easy questions to answer, because buyers are out there.
Corporate profits are at all-time highs, and interest rates at all-time lows. Sluggish economy be damned, investors and business owners alike are definitely shopping the market.
While the traditional 20th century physical property tours that many owners and brokers came to count on may be dropping for some sectors of real estate offerings, viewings of those same properties through the multitude of internet commercial listing services, including broker websites, may literally astound property owners.
All well and good, but where the offers?
There are two big issues at play here:
- The pricing gap between buyers and sellers in the Frederick market is too wide to even begin the process of negotiation.
- Technology has dramatically changed the sophistication level and behavior of real estate consumers.
Part 1 of this post covers the pricing gap.
Pricing strategies of old often do not apply to a new environment.
Prior to the recession (back in the delusional days of “robust appreciation”), a property could be priced as much as 10% or greater than the market value without discouraging offers from potential buyers. Now, despite the feared real estate bottom fishers, I believe that gap is very narrow.
Price your property outside of that and you may hear next to nothing from potential buyers.
Business owners fortunate enough to be in the market looking to buy have experienced economic volatility and are hesitant to jump in for fear of further depreciation in commercial real estate. For them there are two key factors: the numbers have to work for their business or investment, and they have to be assured that they are not overpaying for the property.
In today’s world, unlike those robust years, real estate is more of a commodity than a prized possession to beat your chest about. For many real estate owners across the spectrum, this is very hard to accept.
How often does a broker hear the following? “I put my heart and soul into having this structure built just to my specifications. No stone was left unturned, and I will not give this away!”
Now while the quality of construction is a critical element in a buying decision, flexibility and functionality can be just as critical to a subsequent owner or user.
Serious and unbiased analysis needs to be given to the depth of the market for the variety of potential uses to each property. The deeper the buyer (and tenant pool), the clearer a true value range can be pin-pointed. It’s the basic principle of supply and demand.
The economic environment of the last several years has more often than not been weighted heavily in favor of the former rather than the latter, but despite that the dynamics of a difficult market are ever-changing.
More than ever, commercial real estate sellers must think like a buyer by studying comparable properties, zoning issues, access and visibility (to name a few).
So what does all this mean for selling commercial and industrial real estate?
In a nutshell, overpricing can be the kiss of death in this market. It is critical for the property owners to find and develop a strong and trusting relationship with a commercial real estate professional.
All too often, a commercial property seller will enter a broker relationship with hesitancy, looking at such services as a necessary evil and unwilling to share true intentions. Not all commercial real estate brokers are the same, so a careful interview process is a vital first step in selecting one who can become that trusted advisor.
Getting a true sense of the market value is the first step … the next is establishing and implementing a marketing strategy using a blend of today’s technology and well as some of those tried and true timeless methods.
In an upcoming post, I’ll cover how technology has dramatically changed behaviors of commercial real estate consumers.
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.