A recent surge in commercial property showings has not helped to narrow the pricing gap.
The past several weeks at MacRo have been busier than any we can remember for a long time. It feels as though we’ve shown more properties during the past three weeks than the past six months combined. Along with a few contracts written each week, it has been an exciting time.
Frederick’s commercial real estate market has been in the doldrums so long, and there have been enough false starts, that it will take several quarters of sustained activity like this to change our outlook for the market overall.
But, activity has ramped up to the point that we feel compelled to remark on what is happening in the market.
The majority of calls we are getting are from potential owner/users or renters of warehouse and office space, seeking to expand, relocate, or start new businesses. We’ve had a few inquiries from investors as well, but activity is not nearly as strong with investors.
Real estate owners are feeling compelled to move forward with getting their properties on the market.
MacRo is primarily seeing a surge in interest in properties within, and on the outskirts of, the City of Frederick.
While it’s great to finally see some activity in the market again, there remains a gap between buyer and seller perceptions of property value.
Buyers and tenants finally seem willing to get out and kick the tires and make offers. However, they are very skittish about paying too much.
Small to mid-sized business in particular are moving forward with business models that don’t factor in much in the way of real estate appreciation. They view the economics of financing a commercial real estate purchase as favorable compared with leasing, but they don’t seem to view commercial property as having short-term appreciation potential.
This conservative outlook plays a part in offering price.
On the flip side, there are still a number of sellers who have a somewhat inflated perception of what the market will bear in terms of price. Multiple showings of a property are exacerbating this somewhat—they feed the fantasy many property owners hold dear that Frederick is on the brink of a spike in commercial real estate values. (It isn’t.)
It doesn’t help that so few commercial real estate deals were done in Frederick County during the past year. A slim market with few comparables makes it difficult for everyone—appraisers, owners, potential buyers, lending institutions—to determine the value of a given property with any accuracy, especially in a transitioning market.
So to sum it up: the phone is ringing a lot more here at the office, but it’s still challenging to make deals.
We want to hear from our readers—what are you seeing in the real estate and business communities of Frederick? What is generating this sudden surge of interest in commercial real estate? Are potential buyers feeling more optimistic about the economy, or is this activity the result of a collective decision to accept a “new normal” and move forward?
The authors: Rocky Mackintosh is President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com. Kathy Krach is a commercial sales and leasing agent with MacRo.