SANTA BARBARA, CA-Although the coronavirus has hit the real estate market in southern California hard and the downturn shows no signs of abating any time soon, commercial real estate contracts are not being widely cancelled as a result, according to a report from the Hayes Commercial real estate brokerage.
The locally-based company recently issued its first quarter report, finding widespread uncertainty in the southern California commercial real estate sales and leasing markets. The report, however, also found some "heartening" news in the fact that skittish investors are not simply seeking to back out of contracts over the pandemic, which has shuttered businesses across the country.
"Based on our own experience to date and what we hear from title companies, parties under contract on commercial property have not been reflexively canceling escrow due to the pandemic, which is heartening," the company said in the report.
According to the report, sales transactions for the first quarter 2020 were down 37% from the same period in 2019. The dollar volume of sales was also down 63%, and there were 40% more properties for sale during the first quarter of 2020 than in the first quarter of 2019. The report, however, noted that 2019 had been an above-average year for the southern California real estate market.
The report likened the drop and the potential recovery to that seen during the 2008 financial crisis. Specifically, the report said the number of transactions are expected to remain low, and the inventory will likely contract, with some sellers pulling listings and fewer properties being listed.
The report, however, found some silver linings for the real estate market among the stormy economic news, saying record low interest rates would be good for demand and would encourage some, like leveraged buyers and owner-users, to stay in the market. The report also said that with the generalized upheaval leading causing major stock market volatility, dropping oil prices and low bond yields, the real estate market could begin looking increasingly like a stable place for investors to migrate their capital. Once stay-at-home orders are lifted, the area is also likely to seen a boom in tourism activity, as well, the report suggested.
But overall, the report said uncertainty will be the overarching market trend for a long time to come.
"It's impossible to know what lies ahead, but we expect this market cycle will take years, rather than quarters, to play out," the report said.
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Max Mitchell
Max Mitchell is ALM's Regional Managing Editor for The Legal Intelligencer, New Jersey Law Journal, Delaware Business Court Insider and Delaware Law Weekly. Follow him on Twitter @MMitchellTLI. His email is [email protected].
