By Owen Rice

To borrow a historic phrase: “It was the best of times, it was the worst of times.” As 2018 came to a close, the equity markets had retracted into Bear Market territory. The Dow Jones Industrial Average’s stood at 26,828.39 on October 3, 2018, only to finish Dec. 31 at 23,327.46. The first weeks of the new year have only added to the market vicissitudes, as the Dow surged back above 24,000. Investors, analysts and CEO’s are examining every new piece of data to come to some conclusions about the trajectory of 2019.

On the policy front, the Federal Reserve continued its tightening posture with the interest rate complex edging higher, coupled with the ongoing reduction of the central bank’s balance sheet. However, the market volatility prompted the Federal Reserve Chairman to soften his position on further rate hikes.

And don’t forget trade worries, as China and the U.S. battle over tariffs, market access and intellectual property protections.

Meanwhile, the U.S. economy remained robust with real gross domestic product (GDP) advancing 3.4 percent in the third quarter of 2018. Inflation remains tepid and corporate profits surged to their highest levels since 2012.

In the Seattle geography, the growth and optimism story outperforms the national narrative. The unemployment rate fell to 3.6 percent by November of 2018, and since 2010, the metro is the fastest growing large city in the country.

So, which is it? As 2019 unfolds, will the year produce a “spring of hope, or a winter of despair, with everything before us, or nothing before us?”

The short answer is, it depends on who is offering their opinion.

From the commercial real estate (CRE) perspective, the trends could not be any more impressive. Property owners are seeing record rents, valuations and sales prices. In the office sector, the average asking rent of $35.56 is now roughly 25 percent higher than last cycle’s peak. Vacancy rates move ever lower, soon to break below 6 percent, while net absorption eclipsed 4.3 million square feet of space in the last 12 months.

Ditto for the industrial sector, which rivals any peer competitor in terms of vibrancy. Vacancy rates hover at 3.6 percent, absorption topped 3.3 million square feet over the 12-month period and deliveries accelerated in the year to 6.1 million square feet.

From a pipeline vantage point, the outlook seems tremendously promising. In both office and industrial, developers are scrambling to create product with respectively, 8.3 million and 5.1 million square feet of product under construction.

And there are no shortage of buyers and users. The average sales price for office space in 2018 was $337 per square foot, an all-time high.

Of course, the Fortune 500 names are the headline story with Amazon, Microsoft and Google gobbling up parcels and expanding operations. Yet, it is the co-working entities such as WeWork and Impact Hub that are also making noise. In the case of WeWork, the company entered the Seattle market in 2013, and has leased 1.7 million square feet of office space, which positions the firm as the fourth largest occupier in the region.

Time will tell how this growth strategy will unfold, as the cycle reaches a crescendo. There’s been rumors that Amazon may be subleasing the entirety of Rainier Square, a 750,000 SF building that’s under construction. If Amazon sneezes, do others catch a cold?

So, as a property owner, the current environment looks quite appealing. Landlords are asking top dollar and looking to secure long-term leases. All well and good, but Hughes Marino stands solely with tenants, as the industry’s premier brokerage firm. Our 100 percent fiduciary guarantee to clients means your long-term interests are always represented at the negotiation table.

In that context, 2019 presents a great opportunity to push the pause button and take stock of the situation. Yes, there are reasons to feel optimistic: solid economic growth, a booming CRE market, wage and job growth and consumer and business optimism. Remember though that many of these metrics are backward looking, and ongoing market volatility, trade tensions and a global economic sluggishness could derail the train.

In certain instances, our recommendation to some of our clients is to be prudent with their real estate decision making. As a tenant, if you don’t have to act today, why make a commitment that might leave you paying a premium for real estate if and when the next recession hits?

Every situation is unique, but from a 10,000 square foot perspective, now is the time for patience and a resetting of expectations. The reality is that the Seattle market has been white hot for many years, and rental rates and sale prices have never been higher.

While not recommending taking a contrarian view for the sake of being one; the huge bullish sentiment in CRE suggests at least a yellow light caution signal.

As the year unfolds, there will no doubt be some clarity on the macroeconomic and geopolitical events affecting the commercial climate.

As business owners, let’s take a deep breath, take a look around and assess the fundamentals.

This may not be a Tale of Two Cities, but is certainly a Tale of Two Divergent Theses.