Thankful for Our Clients and Opportunities Ahead
This is the time of year when we focus on family and give ourselves some time to think about what we have to be grateful for. While it shouldn’t necessarily take a designated national holiday to remind us, it is helpful given the pace of life and business here in Southern California. For us, it is a great reminder to be thankful for all of you, our valued clients who have shown the confidence in our team to assist you in making good and timely commercial real estate decisions. So, in keeping with the spirit of the season, thank you for turning to us to help you in those efforts.
As we look back on the year, we have much to be thankful for from a business and market perspective despite sluggish lease and sale activity and persistent economic uncertainty. The industrial real estate market weathered persistent inflation and avoided a full-blown correction, but we are about to enjoy the myriad benefits of landmark federal tax legislation in the form of the One Big Beautiful Bill Act of 2025 (OBBBA). Passed in July, this landmark federal tax legislation offers a handful of substantial tax breaks that will most certainly benefit commercial property owners, investors and occupiers.
If you followed us throughout the year, you’ll remember our posts about elevated estate tax exemption thresholds, enhanced R&D expensing rules, and the return of 100% bonus depreciation that when combined with cost segregation depreciation methodology, can yield hundreds of thousands or even millions of dollars in immediate tax benefits for commercial property owners.
In our minds, the OBBBA is the biggest positive change in tax law since the Reagan years, and 2026 will be our first full year under the new rules. While we have done our best to get the word out to you, the OBBBA was the shiny object on the political landscape for just a short time, losing prominence to other hot issues on the international and national fronts since its passing. As those issues resolve, we think attention will turn back to the OBBBA and early adopters of the new rules will be able to take full advantage before they substantively boost demand for commercial real estate from both a sale and lease perspective.
If things go as we expect them to, demand for quality commercial space will exceed supply again in 2026, which will slow or even reverse the rise in vacancy, putting upward pressure on lease rates and sales prices across Southern California. Developers of new inventory have already slammed on the brakes due to higher vacancy and capital cost, so it won’t take much of a change in demand to have a measurable effect on vacancy and availability. While it will take some time to absorb the last of the first-generation space that came to the market without pre-leasing activity, just a handful of larger deals would take up a lot of the vacancy slack. This could happen quickly, as business owners jump on the OBBBA bandwagon by taking more space and increasing capital purchases that can be fully written off in year 1.
Bottom line: We are excited about 2026. We are optimistic that the industrial property market will return to a better balance point, become more predictable, and foster an environment that encourages Southern California business owners to shake their uncertainty and return to growth mode. No matter what 2026 brings to you, we will be there to help in any way we can. Happy Holidays to all.