Industrial Insights – June 2023 – LA/OC/IE

Market Reports

School’s Out for Summer

Kids are out of school, and everyone is transitioning into summer camp, internships, and travel, depending on the age of your kids (mine are 8 & 10). Summer used to be a slow time in the industrial real estate market, and then 2020-2022 hit, where we all worked 2X-3X as the supply chain was out of whack. The summer of 2023 is shaping up to be the summer of transition. That means a lot of wait-and-see and stabilizing and optimizing what you have while you see what the market will be like going forward. As a result:

1. Lease renewals are the name of the game
Year to date, of the ten industrial leases signed that are over 100,000 SF, nine were renewals. And of the 35 buildings available for lease in Orange County, the average time on the market is over four months. This means that, increasingly, the emphasis is on negotiating the best lease renewal where you can, while you can. This works for both tenant and landlord.  

2. Sublease space increasing
The amount of sublease being offered in the market continues to increase. This has been a six-month trend thus far. The majority of them are being leased quickly and at healthy rates. The veteran brokers know that too many subleases mean that direct lease rates must decrease. Some lease rates are coming down but not across the board. This leads me to my next point. In the Inland Empire, here are the recent deals we’ve been tracking:

Subleased 2325 Cottonwood Ave, Riverside 130,000 $1.45/SF Gross 5/1/23
Subleased 9375 Alabama St, Redlands 158,800 $1.37/SF NNN 5/1/23
Subleased 6250 Sycamore Canyon Blvd, Riverside 133,500 $1.25/SF NNN 4/1/23
Leased 750 S Valley View Ave, San Bernardino 154,560 $1.41/SF NNN 4/1/23
Leased 10395 Nobel Ct, Jurupa Valley 154,380 $1.48/SF NNN 3/1/23
Leased 1861 Mountain View, Redlands 114,057 $1.45/SF NNN 5/1/23
Leased 1840 Mountain Ave, Suite 400, Norco 67,400 $1.75/SF NNN 1/1/23
Leased 26940 Palmetto Ave, Redlands 150,267 $1.38/SF NNN 3/1/23
Leased 998 South Washington Ave, San Bernardino 158,800 $1.37/SF NNN 5/1/23
Leased 14301 Limonite Ave, Eastvale 61,263 $1.61/SF NNN 2/1/23

3. Lease rates wobbly
Calling lease rates wobbly is like calling the capital markets choppy. Lease rates have not been affected in the same proportion as cap rates and interest rates however. But, corporations have revolving credit facilities, debt obligations, and return on equity requirements of their own. With the liquidity drying up in the market, some of the most affected groups are the smaller and medium-sized 3PLs riding the covid wave. Most are struggling. Those 3PL groups helped buoy the outsized lease rate gains of the 2020-2022 market. That tells me lease rates for Class A should have a modest change, and Class B will soften. 

Let me know if this is helpful for you and provide feedback so we can provide you with the right resources, tools, and data to strategize your next industrial property negotiation.

Best Regards,

Justin Smith, SIOR              Grant LaBounty

Chris Vassilian                     Jeannette Cano

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