Why ‘Off Market’ Industrial Sales Are Less Frequent These Days? -Are they better for buyers or better for sellers ?

As the landscape of the commercial industrial real estate market has clearly changed over the past 24-months, from the almost ravenous times of mid-2020-to-mid-2022 to now where we are experiencing a more normalized balanced environment, we are starting to see fewer ‘off market’ opportunities.  Although, it is good to remind ourselves that a normalized Southern California industrial real estate market is still very robust with strong buyer/tenant demand and scarcity of land or buildings, which helps to maintain low vacancy rates and resilient prices.  Overall, scarcity and demand vary from one local market to the next, but demand in the core Mid Counties (LA/OC border) infill market has pivoted more from investors to owner-user occupants.  Demand from the investor base persists, although their underwriting and return requirement have changed as a result of interest rate pressure; therefore, the prices PSF these investors can pay for an asset has generally decreased below what an owner user can pay for the same property if vacant and ready for occupancy.  As a result, owner-user buyers step in to fill the void left by investor buyers on many local so-cal industrial property sales (non-portfolio sales).  Therefore, overall demand for property has remained strong, it is just the motivations and objectives of the buyers that has changed.  

​So what does all this have to do with ‘off market’ transactions, you may ask?   The bottom line is that more owners who are interested in selling now want to have their property in front of the widest audience to achieve the highest price, and publicly listing is the tried and true method to accomplish that.  This will generally increase their net proceeds and the overall speed to transaction closing. Most owner-user buyers are not acting in the same capacity as investor buyers, and therefore they typically will focus their search efforts on publicly listed properties, even when working with a broker.  This has resulted in fewer pocket or ‘off market’ opportunities. In our experience, those owners who will entertain an ‘off market’ offer, will generally plan to publicly list if they do not achieve their desired price.  Certainly, there are situations where an owner may want to sell a property without publicly listing, but that will typically come at some cost to them. But given that owner’s situation and objectives, that cost may very well be worth it to them.  Therefore ‘off market’ transactions are typically more advantageous for buyers at this time, although harder to come by.  With that being said, there are strategic advantages for certain sellers to sell their property without publicly listing.  Things such as relationship of the parties, discretion, speed, particular lease situation, right buyer to solve right situation, timely opportunity to reinvest proceeds elsewhere are some examples of reasons for sellers to consider a  ‘off market’ transaction.
 
Every situation is unique with its own set of opportunities to explore.  Thankfully, over the years we have gained valuable experience and insights into navigating all of these differing scenarios and invite you to call us to discuss your unique situation.