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Commercial Real Estate

Identifying When Change is Afoot

When evaluating market conditions, it's important to go beyond the obvious and look for subtle shifts.
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Years ago, a C-Suite colleague and I discussed “change.” His position was one of the most articulate descriptions of what we all should be trying to do every day, and it seems especially important at this point in our economic cycle.

JLL vice president of research Walter Bialas

Simply put, he noted that when times are good or bad, we do no real service to our companies, our stakeholders, or our clients by simply stating the obvious—that all is well or not so well. In most cases, how things are going is widely recounted in the local and national media. Everyone should be aware of where the markets stand at all times, or at least have a good idea.

The key or, to borrow a term from commercial real estate’s valuation industry, “the highest and best use” is the ability to identify when change is afoot.  If we could see dynamics improving, a company could take a risk before everyone else, win, and be more profitable.  Likewise, if we could identify that things were beginning to trend lower, downside positions could be shored-up and companies could make better investment decisions.  While this view is particularly relevant in commercial real estate, it touches all sectors.

Now here is the tough part—we can’t be swayed by the normal small fluctuations that always exist. Doing that, we become nothing more than “chicken littles” always warning that the sky is falling. Rather, we need to try to call the key inflection points. We need to be critical in our thinking. We need to not simply state the obvious but look for subtle shifts that may be happening. By doing this, we add value to our companies and for our clients.

Why is this important now? Well, we’ve been in this expansion cycle for a very long time. Many are saying it has run its course and that we are in the proverbial ninth inning. Are we?

On the one hand, there are stresses in Europe, Brexit issues (remember we are now a global economy), possible trade impediments, and ongoing conflict in the Middle East and beyond, as well as a highly volatile US stock market as of late.  On the other hand, domestic job gains continue at record levels and unemployment is at all-time lows, especially here in DFW.  At the same time, we are struggling through another rapid decline in oil prices, which can be good or bad depending on where your industry sits.  We are also experiencing a unique period of political polarization.

How do we figure out if this is an inflection point for our industries and sectors?  Well, it goes back to my comment on not just championing the headline of the day because that adds no value.  Rather, to identify if important change is afoot we need to cast a wide net, reading various views, watching the key numbers and metrics for our industries and other sectors since everything is so inter-related these days, testing the numbers that drive our businesses to assess emerging trends, and talk among ourselves.  What do you think? Where do your businesses stand today? Are there any hidden trends that are beginning to influence your sectors?

In my view, maintaining open and honest dialogue is perhaps one of the most important things we can do today.  To be the best stewards of our companies, stakeholders, and clients possible, keeping an open dialog within our firms and with our most trusted colleagues on what we are seeing offers us all the best chance of anticipating future inflection points be they up or down.

Walter Bialas is JLL’s vice president of research.

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