Companies across the country are trying to predict what the new year will bring as we enter 2023.
Partners Managing Principal Jon Silberman has many new reasons to celebrate this year.
Silberman stated that his company is now looking to grow and will leave the NAI Global umbrella in New York. Partners, now rebranded Partners, plans to expand into new markets next year, while also strengthening its staff in Austin, Dallas and Houston.
Silberman spoke to the Houston Business Journal about his firm's 2023 plans and how he feels about the current economic uncertainty in the commercial real estate sector.
What do you see happening to commercial real estate next year, given all the talk about a possible recession? You need to divide the country into quadrants. Some areas will experience a slower pace or less severe effects. The effects of a recession in states such as Texas, Florida and the Carolinas, Georgia, Florida -- states that have benefited from migration from the west coast and northeast -- will be partially offset.
Please tell us more about the Texas market. We are optimistic that Texas won't be as affected as other areas of the country. We are experiencing some slowness but this is mostly due to slowdowns in the capital markets, not a slowdown of demand.
Although we are not currently in the residential sector, there is a slowdown in new home construction. This is normal when interest rates rise and capital markets cool. The migration Texas is experiencing from the east and the west coasts is driving the demand.
Capital markets are just one piece of the puzzle. They are also working to reduce demand. It won't be felt in all areas of the country.
Cooler capital markets can lead to a slowdown in transaction activity for our business. Some investors have put their investments on hold. This is not because they don’t have enough cash or don’t think Texas is a great place for them to invest. However, the uncertainty leads to more people staying on the sidelines for a while.
What is Partners' strategy for dealing with uncertainty? Budgeting is something we do with great care. Our projections for next year are reasonable optimistic. It won't be as great as 2022, but it will still be good. Because our growth isn't tied to capital markets, we expect that our company will continue to expand. We don't anticipate Texas to experience a recession as other areas of the country expect.
We are also lucky to be a privately owned company. We are not planning to make the same cuts as other companies in real estate services. They are making cuts in anticipation for a slowdown. Because we don't need to worry about shareholders, we don't have the obligation to do this. Public companies cannot have too many quarters of decline so they reduce their headcount and increase expenses. This keeps shareholders happy.
We don't plan to lay off anyone or lose anyone. We weren't required to do this during the pandemic and we don’t anticipate having to do it now.
Your company left the NAI Global network because it wanted to expand into new markets. Please tell us how you intend to expand next year. We just opened a Dallas office and have already 15 employees there. Our offices in Austin, San Antonio and San Antonio will grow by approximately 10%, especially in the broker services.
Our goal is to expand geographically into markets that look similar to Texas. These are places that benefit from people moving because of the cost or weather.
Nashville is one market we are looking at. It looks very similar to Austin, but could be even more powerful. They have been able to benefit from large expansions from the West Coast. Oracle is investing in major hubs.
We are also considering states such as Florida, Georgia, and the Carolinas. We will likely move to the southeast, then the central region.
We aim to open 14 offices within the next five- to seven years. This is 10 more than what we currently have.
What size do you think Partners will be in terms of total headcount over the next few years. We expect to increase our headcount, including Dallas, by 30-40 people next year. We are looking to expand both our brokerage and property management services. This is our growth strategy for the next few years.
What commercial lines do your think have the greatest potential for growth? The industrial sector has been so strong, you have to believe that nothing will ever be the same. There will always be strength there. The demand for warehouse space has increased since the pandemic. Last-mile distribution and home delivery of consumer goods was strong before it. To avoid the disruptions caused by Covid, companies have started to outsource their supply chains. Many companies were frustrated by the difficulty of getting products or parts from overseas and started investing in warehouses.
Although financing has been more difficult, there is still demand for warehouse space and distribution centres. Construction of new space is slower because financing is harder to obtain. However, companies still need warehouse space.
Is construction going to stay hot? It will be great, but not as good.
Retailers don't want big-box stores. For a time, some investors stopped investing in retail. Retail hasn't been slowing down in recent years. The growth of service businesses and medical has been phenomenal. The future is bright for occupation.
The problem child has been Office. Houston was already facing a shortage of supply before the pandemic. Flexible work hours haven't helped. The market for office space will not be clear until we have a better understanding of the future of work-from home.
There is reason to remain optimistic. There are still cracks in the armor that is work-from-home. It all comes down to productivity. Companies are beginning to recognize that productivity drops when employees aren't present in the office. Companies are starting to call people back into the office more often. This trend is not stopping, but flexible work will continue to be a part of the workplace.
Given the high vacancy rates, what do you expect for Houston's office market? In the next three to five year, more building owners might give up and surrender their keys to the bank. Although it's not ideal for the owners, it's a good thing for the market as a whole.
The flight to quality is a trend that is not slowing down. Tenants are looking for amenities that will bring people back to work. Tenants desire to live in trophy properties and can justify the expense as an investment in their company. They may also be able to justify taking up less space in order to pay a higher rate.
It is the buildings that sit there that are most in danger.
Houston is experiencing some green energy growth, and it isn't going to slow down soon. Houston is becoming more known as the nation's energy capital, and not only the oil and natural gas capital. These and the life sciences are the bright spots in the office market.
Companies are also realizing that the tax incentives they receive are so huge that they demand that buildings be environmentally friendly. This is creating huge opportunities for industrial and office.