California produces 60% of American roses but the vast majority sold on Valentine’s Day in the U.S. are imported from South America. One hundred and ten million roses will be sold and delivered this Valentine’s Day – another sign of California losing some of its lovin’ (and jobs).
On the subject of jobs, it is really a mixed picture. San Diego ended 2022 with an unemployment rate of 2.9% which was the second lowest rate in the past 20 years! Yet according to the census, 300,000 Californians left the state in 2022 (That’s with births being more than deaths and all of the international migration!). This is the third year in a row of declines. Even Governor Newsom’s in-laws fled the state! U-Haul ranked California as the #1 state in the nation for outbound one-way trips. Many of you will remember I preach that the fundamental rule of real estate is not location, location, location but more people moving in than moving out.
Much of our mixed dynamic can be attributed to continued spending by consumers – unmatched by incomes or savings. In other words, even if an official recession declaration could not be made in 2022, the economy is on borrowed time heading into 2023.
Here’s a personal mixed dynamic that we experienced in the first week of the new year. Last year was a very good year and this year was looking to be 1.5x or 2x better. We had over $13 million of deals all fall out of escrow in a week! Though not unusual to have deals fall out, all of these had been in escrow for 9-18 months and had large amounts of non-refundable money committed to them. Last year if you told me that we’d lose $13 million of deals in the first week of the year, I would have told you that it sounds like it’s going to be a lousy year. However, the other side of the coin is that we have or are about to close $5 million in the first month and a bit. If you had told me that last year, I would have told you that we are about to have another great year. So, is a cup a third full or two thirds empty? What I can tell you is that the deals falling out were around three basic things.
- Rising interest rates.
- Inflation or more specifically rising construction costs.
- Government bureaucracy – slow processing, more and more expensive studies, more reports, and more and more expensive fees… 18 months and no building permits is ridiculous!
Last week, I was asked to speak at the San Diego Risk Management Association (a group of San Diego Bankers) . I was asked to read my tea leaves as to the future of commercial real estate in 2023. Rather than trying to re-capture my talk, I am just going to provide a link. In addition to my charts, you will find my 23 predictions for 2023. This month’s letter will be a lot shorter but if you read the slide deck, you’ll get a lot of information (after all, if a picture is worth a 1,000 words, this will make this month’s letter over 25,000 words!).
I finished my talk with this story about stress (yep, I think we are going to see a lot of that this coming year). Hope you enjoy the story…
A lecturer when explaining stress management to an audience,
Raised a glass of water and asked,
‘How heavy is this glass of water?’
Answers called out ranged from 20g to 500g.
The lecturer replied, ‘The absolute weight doesn’t matter.
It depends on how long you try to hold it.
If I hold it for a minute, that’s not a problem.
If I hold it for an hour, I’ll have an ache in my right arm.
If I hold it for a day, you’ll have to call an ambulance.
In each case, it’s the same weight, but the longer I hold it, the heavier it becomes.’
‘And that’s the way it is with stress management.
If we carry our burdens all the time, sooner or later,
As the burden becomes increasingly heavy,
We won’t be able to carry on.’
‘As with the glass of water,
You have to put it down for a while and rest before holding it again.
When we’re refreshed, we can carry on with the burden.
So, before you return home tonight, put the burden of work down.
Don’t carry it home. You can pick it up tomorrow.’
‘Whatever burdens you’re carrying now,
Let them down for a moment if you can.’
So, my friend, put down anything that may be a burden to you right now.
Don’t pick it up again until after you’ve rested a while.