Industrial Insights – May 2020 – LA/OC/IE

Market Reports

In the commercial real estate arena, we have all gone on a wild ride over the past nine weeks. We’ve seen the market be eerily quiet, to scores of rent relief requests, monitoring who isn’t paying rent in April, who paid rent in May, and now we’re analyzing re-opening plans. The good news is that there are signs of life. We have been amazed to see dozens of tour requests to see the available property in the last seven days.




Rent Relief

We have seen that the majority of industrial landlords be very judicious with rent relief requests. There is still tension between landlords and tenants based on a mismatch of future expectations. Tenants think there will be a blood bath in the streets of commercial real estate, whereas industrial landlords believe that the further penetration of e-commerce, last-mile delivery, and increased inventory levels in the infill market of LA/OC bode well for the market as a whole. As a result, we’re seeing in increasing spread in the bid and ask of lease rates.


Pre-Pandemic Negotiations

Leases that were still in the negotiation process before March 13th mostly went on pause for 4-6 weeks. If tenants have more than 6-12 months until their lease expiration, they are waiting to see how the market shakes out and if they can get a better deal in the future.


Market Regulation and Stimulus Fluidity

The multitude of ever-changing federal, state, county, and city legislation, combined with stimulus and grant programs, have the effect of masking the broader real estate trends because each tenant is affected in different ways.


Sublease Abound

We have seen a two-fold increase in subleases on the market. Most are part of a larger building where the sublease represents excess space. Some are the closing and subleasing of the entire premises for companies that are reorienting their networks.


Short Term Requirements Increase

There are a ton of small overflow requirements in the market right now. These are companies with a need to house 10,000-50,000 SF of inventory for a few months to years.


Public & Non-Profit Budget Deficits Lead to Portfolio Evaluations

We have done work for several different non-profits to help them value their property portfolios. Non-profits are facing budgetary deficits and looking to raise money. Some of these valuations are leading to sale-leasebacks. In a sale-leaseback, the non-profit can retain the use of the property for a predetermined time yet have the proceeds from the sale immediately. Non-profits turn to us rather than appraisers in many of these situations because we can provide a few different creative approaches to discuss with their boards. We expect to see this trend increase over the coming years.




Modest Rate Reductions

Some of the most prominent landlords made modest further rental rate reductions to get deals over the finish line. One landlord, in particular, has reduced their rental rates $0.05-$0.15 PSF per month across their portfolio to better align with market perceptions. We have not seen pervasive rent reductions, as inventory levels remain relatively tight. We’re monitoring this trend closely to see what changes materialize.



Prologis has been the most proactive industrial landlord in getting out in front of the pandemic with resources and communication to their tenants and the brokerage community. Here is their Customer Resource Center for Covid-19 page. I especially like the comprehensive re-opening plan checklist that one of their legal partners created. Prologis has placed a significant emphasis on keeping positive and interconnected communications with its customers, which has led to this landlord having an ear to the market and very well positioned to adapt.


Property Marketing

We knew Matterport and 360-degree cameras were useful for elevating our property marketing efforts because we have used both for several years, but they have become an order of magnitude more helpful during this pandemic. We shoot every interior office, central warehouse, and exterior dock area so that executives can evaluate tour options before getting in the car. We’ve heard back from multiple executives that this made the difference in choosing which space that they give their time to.


Acquisition Opportunities

Today’s saying is that it doesn’t matter what the cap rate is on a property if the tenant isn’t paying rent. We believe now is the time to be making offers on acquisition opportunities to get a firm handle on price discovery. Most investors are looking to make offers on off-market opportunities as these are the sellers who are less tied to pre-pandemic pricing. We maintain a list of potential single-tenant property sellers and a list of multi-tenant industrial properties for sale.


Market Reports


Next Steps

My goal is to be a resource for you so that you have the confidence that we can find creative solutions to any challenge that you face.


Justin Smith, SIOR
Senior Vice President | Principal
Lee & Associates | Irvine
D  949.790.3151
C  949.400.4786
O  949.727.1200

Corporate Solutions
Corporate ID 0104791 | License ID 01504494
9838 Research Dr.
Irvine, CA 92618