​If you have been presented with a proposal for an “Off-Market” transaction, defined as a transaction that is not presently listed on the multiple listing service(s), you, as either buyer, tenant or owner, must weigh the pluses and minuses of such a transaction.  In this article you will find insights to help you carefully consider this opportunity.

​In today’s market with a 1% vacancy rate and high demand, landlords (and sellers) of industrial warehouse property find themselves in a strong negotiating position. How do these market conditions play out in negotiations for tenants and buyers?  Much like the residential market in California, buyers and tenants of industrial property must be prepared to submit strong offers and compete to get the deal.  Here are a few factors to remember when trying to secure a deal. 

​As we approach the end of 2021, we hope you are enjoying the Christmas and holiday season.  It is somewhat staggering to look back and see all that has developed in the industrial real estate landscape over the past 12-18 months.

Please enjoy this recap of 2021 and thoughts as we transition into 2022.

​It is nothing new that demand for Southern California industrial property has continued to grow steadily in recent years. But what is fascinating market participants now is how this demand is accelerating in the fast-paced relationship between the recent lease rates and the price developers are willing to pay for developable industrial land.  What we are experiencing in the industrial property sector is a very rapid exchange of new leases being signed at higher and higher rates, which is pushing the value for industrial land to higher and higher price levels.  And it is happening quickly now.  As a new lease is inked between tenant and landlord at a new high-water mark, it quickly translates to developers being able to push the values on their land acquisition cost as they target future rental appreciation in their return models.  

​With so much interest and activity on virtually every listing that hits the market, and/or even available unlisted properties as the case may be, how should sellers and landlords decide on which buyer or tenant to choose.  There are several key factors to consider in making the right selection.

​Many people are looking at the unprecedented rise in industrial property demand, sales prices and rental rates over the past 10.5 years and they beginning to wonder when we are going to experience our ‘market correction’ that we have grown accustomed to seeing every 7-9 years (going back +/-100 years).  Without getting into why we seem to have these corrections somewhat predictably, and putting aside the always looming threat of unforeseen natural or geopolitical events that can change dynamics in a short time frame, what are the current trends and market fundamentals telling us about industrial property values and demand moving forward?  Well, quite simply, the E-Commerce revolution and technologically driven supply chains are causing more and more of the formerly in-person retail purchase transactions to be secured and completed ‘online,’ and subsequently shipped directly to consumers. As a result, the inventory that formerly occupied large amounts of ‘commercial retail space’ is now being absorbed by industrial properties, and most predict this trend to continue for the next several years, at least.  

​In what feels like a steady but rapidly appreciating real estate market, at least since about 2010, people on all sides are beginning to ask questions regarding the length of this cycle.  “How long can things continue to go up at this pace?” “What could cause a change in trajectory?” and “How does inflation play into all of this?”  For the purpose of this article we will focus primarily on the last of these questions by looking at values of real estate and how inflation may impact these values.
 

​With many new taxes being proposed and considered at both the local and national level, people are beginning to ask “How will this affect my family or my business?” However, an equally important question is “How will this affect business in America in general?”  But for the purpose of this article, we are going to look at how these taxes may potentially affect the local industrial real estate market in Southern California and the decisions or considerations market participants face on a daily basis. 
 
Taxes or fees are being proposed at the local level for items as basic as road maintenance caused by heavy truck traffic, and at the national level from income to capital gains.  These taxes, coupled with more and more regulation, continually put financial pressure on owners and occupants of industrial properties as they try to provide for their employees and families.  As we talk with these groups, we hear how discouraging and frustrating the continual addition of more taxes or regulation is on both productivity and morale.

While we looked at the topic of the scarcity of industrial real estate or warehouse space in our article last month (Navigating a Tight Real Estate Market (destinoindustrial.com)), this time we will dive a little deeper into how this may effect behavior in the market place.  Buyers and Tenants are very motivated to purchase or lease property, and Sellers and Landlords are very motivated to get top dollar and all the terms in their favor.  While this dynamic clearly creates tension in negotiations, it also creates tension in relationships and interactions on the peripheral.  Buyer’s and Tenant’s can be skeptical of the advocacy of their agent on their behalf when they don’t seem to be scoring too many points in the negotiation process. Sellers and Landlords can also tend to want to over-play their cards and down-play the advice of their agent when introduced to the prospect of so many candidates for their property.  With the tensions mounting and the stakes high, one slip can significantly damage relationships.  However, as transactions successfully come together (or cancel for the right reason) and clients experience how valuable their agent representative was throughout the process, it can solidify that relationship between client and trusted advisor for a long time to come.

​When looking to lease or buy industrial property in Southern California, it is challenging to find the right solution.  Missing opportunities or not being able to find a suitable property can be  frustrating experiences.   In addition, everything seems to have multiple offers, sellers and landlords are firm on their price, choices are few, and the list goes on….  This can create pressure that can influence  significant decisions. We must take steps to deal with these challenges, but also to slow down the decision -making process in order to make informed choices.
 
There are several items to consider  in order to be best positioned to seize opportunities in today’s market.