Industrial Insights – March 2023 – LA/OC/IE

Market Reports

NAIOP I.CON 2023 Key Takeaways

NAIOP is one of the most influential industry groups we have in industrial real estate. They have conferences on the west and east coast every year, and this year’s get-together occurred last week. Here are the top 10 topics that shaped the conversation between users, investors, and brokers alike:1. The outlook for the U.S. Economy is closely tied to the labor market, which is historically tight.

  • “GDP is a function of labor, capital, and productivity,” said keynote Rebecca Rockey, economist and global head of economic analysis and forecasting at Cushman & Wakefield. “A slowing population and slowing workforce growth mean that we need technology to help us create output at higher rates – to offset lost output from less labor growth.”

2. Industrial absorption is cooling, but demand remains strong overall.

  • “Industrial is doing well, no distress to speak of, but banks have had to be less transactional and are playing defense, looking at their portfolio, working on mods,” said Valerie Achtemeier, vice chairman of capital markets, CBRE. “So, the banks have not been particularly active. The regional banks were stepping in to fill that void for a while, and now they’re requiring heavy deposits.”

3. The COVID-19 pandemic upended the supply chain and changed the nearshoring calculus.

  • “We started having this trend of changing from a global economy with global sourcing to a regionally global economy,” said Gregg Healy, executive vice president and head of industrial service for North America at Savills. Now, “there is a tiered approach, with a lot of product coming in from [the global South] and coming to these nearshore or friend shore countries that are more friendly to the United States.”

4. Some markets offer advantages based on labor market indeed and total cost modeling, but the logistics labor market in the Inland Empire remains hard to beat.

  • “Half of our business is in the Inland Empire,” said Ryan Shelton, senior vice president, market officer leasing West, Link Logistics Real Estate. “We’re learning that real estate site selection is highly focused on labor and the future growth of labor. What makes the Inland Empire so great is that the concentration of workers, warehouse, and material handling workers is very strong, and the amount of growth in the last five years has been 400%, which is extraordinary and unmatched.”

5. Multi-story industrial – whether used for fulfillment, maker spaces, labs, or light manufacturing – requires a new approach, different requirements, and more explanation. 

  • “Once a certain height is reached, it qualifies as high-rise construction, which is a different code and review process,” said Ken Sun, senior vice president, regional head of development – West region, Prologis. “Plus, it’s more expensive. This is where tenant requirements are important and identifying the true needs for the project.”

6. Investors are interested in industrial opportunities in Southwest markets, particularly in Las Becas and Pheonix, which have seen strong population growth.

  • “One thing not discussed as much in the headlines is the East Coast companies that don’t have a West Coast hub facility,” said Sean Zaher, senior vice president for CBRE. “Historically, they would have gone into Southern California. Now, they’re stopping at the border, whether it’s Las Vegas or Phoenix, and creating their West Coast hubs there.”

7. Power is the first challenge for companies building or investing in the Mexican market. 

  • Access to strong, reliable power is critical to manufacturing and assembly facilities. Private development investment is hindered by unique challenges of the country’s electricity regulation, needed federal investment in infrastructure, and skyrocketing costs of securing power rights. While government officials are beginning to understand these implications and are examining other sources of power, like wind and solar, the solutions aren’t quick.

8. Conversation and connection with the community are critical in helping industrial coexist peacefully with residential real estate.

  • “Industrial real estate is a team sport,” said Patrick Daniels, co-founder/chief executive officer, CapRock Partners LLC. He presented an industrial entitlement and development case study on Palomino Ranch Business Park, a 110-acre master-planned industrial park in Norco, California, about 75 miles east of the Port of Long Beach. “We knew we had to have the best-in-class, a great land use attorney along with architects and engineers,” and a public relations professional who would be key in connecting with the local community.

9. Get buy-in from all parties involved early to streamline the implementation of sustainability strategies and achieve net-zero targets.

  • “Since we’re in California, it’s worth pointing out that the new property building code requires solar in our new industrial buildings,” said Grant Walden, LEED AP, head of sustainable strategy, GAIA. “It’s important to bring a solar developer on early or bring in a solar consultant to do the brand’s design and ensure engineers are getting early looks at things that can get pushed to the end. This streamlines the implementation and usually reduces costs as well,” he added.

10. Flexibility, scalability, and the ability to start operations quickly are key considerations for advanced manufacturing facilities. 

  • Attendees could tour cutting-edge advanced manufacturing facilities in Douglas Park, an industrial, retail, and hotel center that spans more than 260 acres adjacent to the Long Beach Airport. They visited Morf3D, a company advancing the aerospace industry using additive manufacturing, and Heliogen, which uses the sun’s power to create energy in its quest to replace fossil fuels.

Lease Comps

Here are the top comps of the quarter for LA, OC, and IE industrial. Don’t hesitate to get in touch with us to create a detailed report for your needs.

Street Address City SF Start Rate Annual Increases Free Rent
14425 Yorba Avenue Chino  129,138  $  1.55 3.5% /1y 0.0 months
21508 Ferrero City Of Industry  274,474  $  1.72
4000 Noakes Street Commerce  111,260  $  2.35 4.25% /1y 0.0 months
1420 McKinley Avenue Compton  136,685  $  2.30 4.0% /1y 1.0 months
14301 Limonite Avenue Eastvale    61,263  $  1.61 4.0% /1y 2.0 months
14815 Hilton Drive Fontana    76,809  $  1.65 4.0% /1y 3.0 months
2362 Kimberly Ave Fullerton  173,825  $  2.09 4.0% /1y 2.0 months
4 Goodyear Irvine    94,195  $  2.45 4.75% /1y 4.0 months
1670 Champagne Avenue Ontario  263,670  $  1.87 4.5% /1y 2.0 months
17335 Glen Helen Parkway San Bernardino  604,029  $  1.49 4.0% /1y 0.0 months
12521 Los Nietos Road Santa Fe Springs    92,771  $  2.05 4.0% /1y 6.0 months
5001 South Soto Street Vernon  118,714  $  2.08 3.5% /1y 3.0 months

Market Reports

Media

  • Book #1
  • Book #2
    • Industrial Income, The Investor’s Guide to Maximize the Value in Commercial Real Estate Leases
      • I’m currently targeting a publishing date of July 1, 2023, and looking for beta readers for advanced copies of the manuscript now. Let me know if you would like to review select excerpts.

Podcast

  • Josh Dwayne, Integrator, Hy-Tek Intralogistics – Josh goes over a general framework and answers frequently asked questions about warehouse automation and what teams need to consider when introducing new systems to lower costs, increase efficiencies and compete in today’s supply chain.
  • John Feinberg, CEO, Otso – Here, we discuss the future of credit underwriting and securitization of industrial leases. He is using AI and machine learning to streamline the process, unlock faster insights on tenant financials, and has teamed up with an insurance company to provide tenant-funded surety bonds to landlords instead of security deposits.
  • Matt Hargrove, CEO, California Business Property Association – This will go live within the next two weeks and is a fantastic breakdown of all the legislation for 2023 that you should know about as an industrial property owner and user. Coming next week.
  • The next episodes will drop in the next 30 days focusing on enhanced credit underwriting techniques for landlord leasing teams and system integrator insights for tenants that are setting up their e-commerce facilities.
  • Subscribe to the show or listen to individual episodes here.

We’d love to catch up with you and brainstorm how we can make your goals come to life.Best Regards,Justin Smith, SIOR              Grant LaBounty                     jbsmith@leeirvine.com         glabounty@leeirvine.com        Chris Vassilian                     Jeannette Canocvassilian@leeirvine.com     jcano@leeirvine.com

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