Here are my two favorite charts for the month that illustrate where we are heading in the industrial real estate market.
In Orange Country Industrial leasing activity, we’re seeing rent growth slow. Slow rent growth though doesn’t mean negative rent growth though! Lower priced larger logistics properties have the highest rent growth. Higher priced smaller R&D properties have the lowest rent growth. Leasing concessions are still around and more prevalent than actual rate discounts
Sale Prices and Cap Rates
In the Orange County Industrial sales market, we’re averaging $250 PSF and 4.7% cap rates throughout 2020. Most investors continue to find it hard to find a home for their capital “buckets” and secure attractive yields for their 1031 exchanges. Investors who were once picky to one slice of SoCal aren’t anymore. It’s typical to search in every county from the valley down to the border. Capital flight to Texas is real as well.
Happy to announce that we just completed the 5-year lease of the 70,706 SF industrial property at 13220 Molette St, Santa Fe Springs. We represented the tenant on this one. This is the third lease we’ve been able to work on over the 10 years we’ve known each other and each time gets better. We learn something new every time. This time it was about Dock Hogs or Load Hogs. These are dock levelers that you can use when edge of docks aren’t practical but you don’t yet need full-blown pit levelers.
This new lease listing is 20,000 SF and part of a larger 65,000 SF warehouse in Santa Ana. This space is purely for dead warehouse storage and has access to a ramp and multiple docks on one side through a shared speed bay and exclusive access to a dock on the other side of the space. We have a chain-link fence installed with privacy meshing and there are two rows of existing racking that can be utilized as needed. Asking for $1.05 GRS.
We have a new single tenant triple net leased Dollar General for sale just south of Dallas Fort Worth. This is a property we sold to a client two years ago who is enjoying the cash flow but has estate reasons for selling the property. This is a great place for the investor to park capital in a stable investment with good returns. We’re targeting a 6.1% cap rate with 13 years left on the initial lease. This property was recently constructed in 2018.
This is a high tech office coworking space that we have leased over the years. This can work for a start-up space that doesn’t want to be in a high rise office and is looking for high-end creative space with a view of green space. It helps that the landlord is a venture capital investor!
The most useful part of this report is that you can zoom into one of 31 markets across the country to see what is happening there for industrial, office, and retail. Q3 National Reports will be out by next month.
You can see on page 7 a running tally of the largest 40 deals that went down in the last 12 months throughout the county. Big splashes in the market were Vit-Best’s expansion and Anduril Industries in Shea’s new Santa Ana buildings.
The current investment volume is 60% of last year’s volume. There are several transactions in progress that should level up our total investment volume by year-end.
Ecommerce and logistics are gobbling up the vast majority of all new speculative construction nationwide. Some of the largest players are working on 40-50 warehouse acquisitions per month with no end in sight. We are at the very beginning of seeing the ramifications of this structural shift in the demand drivers.
The Logistics of Leasing: The Tenant’s Playbook for Industrial Real Estate is back to my editor right now. Thank you to all those who have read advanced copies to give me feedback to make it a more valuable resource for clients and executives alike.
I’ve been interviewing executives at XPO Logistics, Ryder Transportation, Geodis as well as warehouse automation providers about the coming wave of warehouse automation, robotics, and technology that is coming to a warehouse near you in the coming years. Thank you to the Ware Malcomb folks for being available to help go through food processing plants and cold storage properties of the future. It’s exciting stuff. If you have any connections with people who are active in these spaces, please let me know!
What is your next project? How can I support you? I love talking with people about their plans and helping them turn them into reality. I’m happy to dig into a project with you and help add value in every way possible. Let me know what you have in mind and we can kick around some ideas.