As commercial real estate practitioners, we spend our days advising land owners and occupiers. These are for office, retail, or industrial use.
I have been growing industrial trades in Orange County and the Inland Empire for over 40 years. Over time, I have seen wild swings in market activity (also known as purchases and leases).
In the early 1990s, it fell into a deep slumber due to the invasion of Iraq and the collapse of Savings and Loans. We dealt with sluggish demand until speed picked up in the middle of the decade. The bursting of the dot-com bubble and the monetary corrections of the early to mid-2000s also caused quite a stir.
What followed was a series of activities from 2020 to 2022 that we have never seen before. We are currently in a situation where there is a lack of demand due to uncertainty. Remember, I wrote about it last week.
Today I want to discuss a simple way to determine which direction we are moving in, up or down, on a scale that favors the occupier or owner.
If there’s one thing I’ve learned over the years, it’s that assessing a market means more than just looking at vacancy rates and rent trends, it’s understanding the balance of power between owners and occupiers. It means that it is a thing.
An unofficial but simple method I have used is what I call the “emotional quotient.” Essentially, this is a measure of who feels more distress or confidence: those who have space to rent or sell, or those looking to occupy it.
What I am currently seeing and hearing suggests that the scales are tipping in favor of the residents.
How do I know? Conversations with landlords have gone from boasting to careful consideration. When owners and their representatives become eager to have “productive conversations” about lease terms, we know we are moving to a stage where flexibility and concessions may be on the horizon.
subtle changes in conversation
In fact, these shifts in tone often signal broader trends before the numbers catch up. Let’s take an example.
In the early 1990s, during what many in the industry refer to as the post-savings and loan era, there were still no signs of market cooling in the statistics. But for us on the ground, it was obvious as daylight.
What gave us the hint? The tone of the conversation with the owner changed from assertive to curious: “What’s going on outside?” Instead of “I’m going to do well at this price.”
Today, I am noticing similar changes.
In the Inland Empire, where logistics has been king for the past five years, conversations that were once about competing for the highest price per square foot have turned into thoughtful discussions about structuring deals that create long-term value.
For example, some owners are asking about the impact of rent abatement periods and tenant improvement allowances. In this area, negotiations were not as flexible when the market was strong.
Metrics that go beyond numbers
But why focus so much on emotion? Because market reports and indicators, while useful, can lag behind actual reality. When deals are renegotiated, terms become more flexible, and incentives start to creep back in, it signals demand is softening relative to supply. And that’s exactly what I’ve been noticing lately.
For example, last month I saw a deal close for a mid-sized logistics tenant in Riverside. The lease was signed at a speed that would have raised eyebrows among the ownership crowd six months ago. But with uncertainty looming, landlords opted for guaranteed occupancy over speculative rent increases. To me, that’s an early indicator of where we’re going.
A window into demand dynamics
On the resident side as well, I think their behavior can tell us a lot about the direction of the market. As they begin to negotiate tougher expansion options or postpone large lease commitments, it’s clear they feel uncertain about their future.
I’m currently seeing this happening to clients in the Inland Empire who are recalibrating their growth strategies to accommodate supply chain instability and rising interest rates.
When you ask residents why they are hesitant, many will point to market reports. Instead, you’ll hear things like, “We’re waiting to see if interest rates stabilize,” and “We’re worried about maintenance costs if demand falls.” These concerns are less about where the market is now and more about where the market is going.
In commercial real estate, the market doesn’t always shout its intentions, it whispers its intentions through subtle cues. For now, the whispers represent a delicate balance that could easily tip in favor of residents if uncertainty continues. The key is to listen carefully and respond proactively.
Therefore, if you are trying to measure market activity, don’t just look at indicators. Listen to the conversation and observe any changes in emotion. These changes give you a better idea of where the market is heading than a spreadsheet.
Allen C. Buchanan, SIOR, is president of Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
