Rise of the Sublease!
No, this isn’t your favorite Star Wars movie, Rise of the Resistance, but it is the next series in the industrial real estate market evolution. This last 60 days saw a notable rise in sublease space across Southern California. Not enough to warrant concern but something to watch and see how it manifests. With the rise of more sublease space comes pricing decisions. You are now under the market if you have a lease signed before the monumental lease increases of the last 2 years. Should you price it at what you are paying to move it quickly or at the market and try to arbitrate it and collect a spread?
In tandem with the increase in sublease space is the start of having asking prices on properties again. We are seeing just the very start of this. We are also seeing “whisper pricing” and the proposal going down by 3-5%. That means having multiple proposals in the market as a tenant is a must.
3PLs are the ones to watch in the next year. After excess inventories work through the holiday season, what will 3PLs do? What will consumer consumption do? We are keeping our eyes on 3PLs as they are the largest tenant base of any user in Southern California. Will they soften? Will we see this in the South Bay near ports or the Inland Empire? Time will tell.
Investors are still very much in the game but are being more conservative. No one wants to buy a significant deal that may be overpriced. Price discovery continues. The same goes for developers. Many developers contemplate paring down their land banks in select markets to allow owner-user land sales and build-to-suit developments to lower their bases without adding to the competition.
We could get out of the office just before Thanksgiving to take a moment as a team to unwind and celebrate a great year filled with hard-fought wins, create clients, and a record year. Thank you to Pelican Hill for hosting us and having the course in great shape.
We’d love to catch up with you and brainstorm how we can make your goals come to life.
Justin Smith, SIOR Grant LaBounty
Chris Vassilian Jeannette Cano