So by now you’ve been to at least three conferences which tell you the economy has hit the bottom, it’s a U curve, 2010 will still be slow with savings and not consumption being the key characteristic, 2011 is a comeback year, but real estate will never get back to the boom boom days of only a few years ago. So what does it all really mean to the real estate professional?
- Increased Competition. Whether it be for legal services, brokerage services, or commercial space, there is less demand and thus greater competition. But price is only one component of the decision factor. Service and quality still will be key decision factors. For example, while new centers have issues, retailers will still be looking to get into the established market leading centers and will pay the higher rent to get there. And having or obtaining a good relationship with a customer by providing over the top service is a great hedge against competition.
- Marketing is Still Important. We all need to pay attention to expenses, but marketing is not one of the expenses to be cut. In the face of increased competition, it is more important than ever to get the quality message across. However, the marketing budget should be examined to make sure that the budget is allocated wisely. Place an emphasis on direct, active marketing most likely to get face to face with prospective customers.
- Be Careful Extending Credit. There will still be higher than normal business failures, even by well established companies.
- Do Not Sign Long Term Deals at Today’s Rates. Consider short term deals even where you normally want long term ones. Although no one can say with certainty, there is a good chance that rates will increase in 2012, so signing a long term deal now could tie you up at lower than market rates. Also, a credit tenant may have really good leverage now. Resist the temptation to sign a deal at any price. The balance of power may shift in a couple of years and that credit tenant may not have such great credit in a few years. As a tenant, consider the goodwill you will get, which can translate into tangible benefits, by merely being reasonable and not taking undue advantage of the economic climate.
- Consider Other Sources of Income. Can the attorney branch out to other areas? Can the landlord come up with alternative uses for its vacant properties or monetize unused space ? Can the broker branch out to other consulting services?