Industrial Insights with SoCal Industrial Market Update

Jay Tanjuan 00:41

Heh heh. Yeah, no, thanks Justin. Thanks for having us on. You've been on your podcast before, so it's great to... I'm

Sean Ward 01:29

You

Jay Tanjuan 01:31

rock fight since then. So that's that's been my experience thus far in four years or so that it's gonna but but otherwise it's been great.

Sean Ward 01:44

I'm still shocked that from you saying 20 years in the business. mean, this is, are we that old guys? Like is this, has this happened? I mean, I'm 23 years at CB, which is just mind blowing.

Jay Tanjuan 01:57

Yeah.

Sean Ward 01:59

Crazy. Yeah, but I'm Sean Ward. I've been with CBRE 23 years, based here in Orange County. I've done industrial that whole time. Didn't start at CBRE, I was at a different shop for a few months before, but essentially my entire career after college has been in industrial real estate and most of it here at CBRE.

Sean Ward 02:28

yeah. yeah.

Jay Tanjuan 02:36

Yeah.

Sean Ward 02:38

Yeah. yeah. Yeah. I pride myself in the dad jokes with the kids. Like I love to embarrass my kids. So yeah, you know, you know, you're of a certain age when like your favorite thing in life is to embarrass your teenage kids. So yeah.

Jay Tanjuan 02:47

yeah. Yeah, my kids are still at the age where, you know, just at the cusp of, you know, our parents, my wife and I, we're still like, they still want to hang out with us, you know. And so, but I already feel the oldest one, she's going to be 12. You know, she's already like trying to create a little bit of space, you know, which is, you know, kind of tough, but it is kind of how it goes.

Sean Ward 03:08

Yeah, that's nice. That's cute. That is the process, yeah.

Jay Tanjuan 03:24

Yeah.

Jay Tanjuan 03:30

Right. Yeah.

Sean Ward 03:33

Yeah.

Jay Tanjuan 03:38

Yeah, that's exactly it.

Sean Ward 03:38

Mm-hmm sounds right Nothing better.

Jay Tanjuan 04:13

Yeah, I mean, I think this year has been a lot more positive than last year. Last year at the start, know, that first quarter was, you know, really active. And then Liberation Day, April 20, 25 hit and then. everything slowed down. So I think a lot of the activity that we're seeing right now, because I think this first quarter for 2026 has been really strong. You we have a project in Garden Grove that, you know, we were talking to a few groups. So that's been encouraging and, you know, wrapping up construction there. So, but I think this first quarter, you know, is really maybe some pent up just demand and activity just from the inactivity from third, fourth quarter of 2025. So I think it's really gonna be telling what happens now, April, May, June, heading into the summer, what that activity looks like and if we're able to sustain the momentum that we're kind of building in this first quarter right now. And then not to mention there's so many kind of things outside of our control. you know, the war in Iran, you know, what's happening with the Straits of Hormuz? Are we going to have inflation again? All these things like that are are hanging out there that could affect which direction this thing goes. So but I will say I'm encouraged and I think it's been positive so far. so, you know, I believe 2026 will be better than 2025.

Jay Tanjuan 06:02

Oh, sure. Yeah, I think that's been a big difference as well. We've seen a flurry of actual development deals to actually pursue. And most of it is kind of from other developers that have, for whatever reason, need to move on from the project and go in another direction. So I think that's been encouraging. I was just telling someone it's probably, you know, see like a new deal come through at least every week that's openly marketed. And so that's in addition to kind of all the off-market stuff that we're chasing behind the scenes. there's been a lot of land development sites come to the market in Orange County and LA areas. You know, not seeing it really in the IE as much as active. But I think the big reason LA and Orange County are getting a lot of activity is really advanced manufacturing and some of these groups that are paying the highest rents. And if you're in the right pocket in LA and Orange County, you can really push rents. And you're seeing buyers lean into that theory. And it's getting quite competitive. You can't just underwrite. super conservatively and hope that you can win it because you're never you're not going to be anywhere near the the the top you know so so buyers are leaning in so i think now's the the time to to take action because it's it's not going to get any easier you know we have such a difficult time developing in in california for a variety of reasons namely you know the

Sean Ward 07:53

you

Jay Tanjuan 07:56

the legislation that's in place that is generally kind of anti-warehouse and a lot of other factors that are affecting doing business in California that make it just much more difficult. So if you can get something now, think that's now's the time to strike.

Sean Ward 08:22

Well, I agree with Jay. mean, it certainly doesn't hurt that land values have come down 60%, 70%. It's just interesting when you look at that math, right? Like we just sold a piece of land to a developer and that value was two thirds cheaper than what we were selling that piece of land for in 2022. I mean, it's just wild. I mean, you think and... you know, the underwriting, the base underwriting to justify the land value. I mean, those rents are even higher today, you know, than they were back then, or, you know, pretty close to the same rate. It just shows you, know, cost of capital, construction costs, like those two things swing the pro forma so wildly. But yeah, you know, overall the market, like I would say, let's just say I've never used the term advanced manufacturing so much in my entire life.

Jay Tanjuan 09:19

No.

Sean Ward 09:19

I never thought of that term so much. That is the main story. I think if you had to sum up in Phil SoCal industrial, it's advanced manufacturing, a bottom line. The deals that are happening now primarily in South Bay and they're happening in Orange County, but really just with Anderil, if we're being honest, or companies that supply to Anderil and need to be very closely located to them.

Sean Ward 09:46

but the groups that the deals that are happening in South Bay right now are just, they're wild. And the rents are high. You know, to me, it's like, you have to be in a location. So the question is everybody's trying to figure out, what makes an advanced manufacturing building, right? Is my warehouse an advanced manufacturing building? Like every owner, our team, right? Yeah.

Jay Tanjuan 10:02

Mm-hmm. Yeah.

Sean Ward 10:09

Part of that is you get to paint with a wide brush there of like, yeah, sure. It's an advanced manufacturing building. Some of it I will think is marketing, know, certainly in the groups that are trying to pitch their buildings as advanced manufacturing. But the bottom line is when you look at how the operators, the occupiers are looking at buildings, like what is their calculus? First and foremost, it's proximity to labor, right? Andril will lease buildings at pretty strong rates. If they're close to their headquarters and close to their labor base, they're not going to pay to date they have not reached outside they haven't come up to North Orange County to lease a building. not going to pay to 25 a foot triple net for North Orange County building. Not right now. know, South Bay I mean, there's a guys deal just happened on Morgan Stanley's 500 with velar atomics a group that makes like small modular nuclear reactors. power generators. I mean, it's wild, company of less than 50 employees, you know, leasing a half a million square feet and one of the biggest deals that'll happen in Southern California this year. Any company that is in AI, energy, robotics, rockets, space, I mean, it is wild, the groups that are coming out.

Jay Tanjuan 11:15

Mm-hmm.

Sean Ward 11:35

And it seems like they're moving from 5,000 square feet straight into 500,000 square feet. And it's like, you can't really see them coming. Like they're just coming out of nowhere. They weren't on anybody's radar. And then it's like, whoa, my God, what happened there? So that to me, that's the main storyline of the market right now. It's not indicative of the overall market, but it's becoming a more significant theme. The data, it's starting to move the data, move the needle.

Jay Tanjuan 11:40

Yeah.

Jay Tanjuan 12:05

Yeah.

Sean Ward 12:12

Yeah. It, yeah, it's proximity to labor, power and parking. Those are the top three, the three P's we call them. And if you got that, if you have that lineup of those three attributes with a couple other things, they seem to want 36 foot clear, know, 32, 36 foot clear buildings. They seem to want things like, you know, flat floors, but primarily they want as much power as possible.

Jay Tanjuan 12:24

Yeah.

Sean Ward 12:45

as much parking as possible and it's got to be in the right location.

Jay Tanjuan 12:51

Yeah, and thought it's been interesting. Sorry, just to add to that, mean, you know, one of the biggest things, historically for SoCal that has been the main driver for Industrial has always been

Jay Tanjuan 13:06

Hey, we're the closest to the ports of LA and Long Beach. And so you're you're we're actively tracking port activity to to trans, you to translate to warehouse occupancy. And so what's been interesting, think, was last year we actually broke records, I think, all time records for the ports of LA and Long Beach. Well, over 20 million TEUs were coming through. But then our vacancy was still

Sean Ward 13:10

Mm-hmm.

Jay Tanjuan 13:36

higher than it's been in recent years. So that's, I think, been an interesting development, whereas maybe we're... evolving a little bit to not be as port centric. mean, we're always going to be, it's always going to be a thing, right? Because we are so close, but maybe this advanced manufacturing story is going to be more of the dominant kind of narrative, I think, moving forward.

Sean Ward 14:10

So with that disconnect, right? Record high imports, no real significant movement in the industrial market. Where's that disconnect? Do we have theories on that?

Jay Tanjuan 14:20

Yeah, well, I think it's just going on rail. mean, you know, in 2020 during the supply chain crisis, you know, we saw all these ships, container ships lined up of the the coast of LA and Long Beach trying to get in. And then, you know, I think they've learned from that process, you know, to be more efficient. They've incorporated, I think, more automation also at the ports. And so they're able to get that stuff through and they put it on rail and then it goes to the rest of the country. Because I think coming in through the ports of LA and Long Beach are I think is not always, but oftentimes the better alternative than trying to go through the Panama Canal and you have all those issues that could pop up there and then trying to go to the East Coast or Gulf Coast ports there. So I think coming in from Asia, coming in through the ports of LA and Long Beach and then distributing from that point. And it doesn't really stay local. as much.

Sean Ward 15:28

Right. I think to another theory I've heard is that it's hard for folks like us to track the space utilization that these three PLs have, like how full are their buildings? Right. So my guess is that, you know, the imports have been coming in and taking up a lot of empty space sitting in three PLs warehouses. But I don't know, we have a supply chain expert on here with us, so we should ask him.

Jay Tanjuan 15:41

Right. Yeah. Mm-hmm. Heheheheh...

Sean Ward 15:57

what the reason is.

Sean Ward 16:29

bright. Hmm. Mm-hmm. Very interesting.

Jay Tanjuan 17:21

Yeah, and we built a lot of industrial space, you know, from 2020 to 2020. 2022, you know, and even before that, built, were in the Inland Empire is going at 40 million square feet under construction a year routinely. And all of it was getting absorbed. We couldn't build it fast enough. And then, you know, all that stuff with, you know, e-commerce and the whole, you know, the pandemic and, know, that just, you know, you know, jet fuel in the whole thing to really send it into another, Stratosphere. So, you we just built so much and then now we're kind of having to deal with it and it's taking a while to kind of right size, I think, and figure out what's the optimal space needs, I think, for groups. but, you know, we're starting to see some of these now, these companies, you know, they're, it's been five years now, so they're up for renewal and, so what's that going to look like? How much are they going to grow? Are they going to

Sean Ward 18:01

Mm-hmm. Yeah.

Jay Tanjuan 18:28

know, contract or stay the same, you know, so we're gonna really see how that plays out now in real time.

Sean Ward 18:37

IE is a completely different animal. You know, that market relies heavily on the 3PL activity. But infill, mean, in Orange County, there's like less than a million square feet under construction right now. I mean, that pipeline of new development is seriously drying up. And this was our thesis for the last two years. One of our talking points is when we get into 26, 27, there's going to be very little inventory, quality inventory.

Jay Tanjuan 18:44

Yeah. Mm-hmm.

Sean Ward 19:06

I mean, you look at the last look at LA and Orange County infill markets here in SoCal. Look at the last 10 deals, the largest 10 deals that happen. I mean, they're big buildings and they're, you know, class a all the way buildings. And they've been leased by, you know, there's a mix of like these advanced manufacturing users with a ton of investment capital behind them. And then there's like the brand name blue chip, you know,

Jay Tanjuan 19:20

Mm-hmm.

Sean Ward 19:34

I can't even say their names. I don't think I'm allowed to say them, but we all know them. You know, they've been leasing space like crazy too. And so then the question becomes like, okay, well, where does the next 500,000 square foot building going to go? Like it's not under construction now. You know, where does it go? It's getting harder and harder to build. It's harder and harder to find parcels of that size. You've got owners sitting on land that

Jay Tanjuan 19:37

Yeah. Mm-hmm.

Sean Ward 20:02

still think their land is worth $180 per land square foot and don't want to hear that it's only worth, you know, maybe $80 on a good day. Right. So there's a, you know, buyer seller disconnect, a price disconnect. Uh, it just becomes real interesting. I don't know. I just had CB research pull a stat in Orange County that only 2.7 % of our base is 36 clear or better. It's like nothing. It's nothing. There's

Jay Tanjuan 20:09

Mm-hmm. Yeah.

Sean Ward 20:28

I'm running with the requirement right now. They need, you know, four or 500,000 square feet and explicitly was told, please don't show us anything under 36 foot clear. This is a storage distribution type of use. you know, that list based on the leasing that has happened over the last six months, we had maybe six options and I don't even know if we have one right now.

Jay Tanjuan 20:42

Mm-hmm.

Jay Tanjuan 20:55

Wow. Yeah. Yeah, because that's the thing. It turns pretty quickly once things get going. And then before you know it, you're like, wait. Now we have a problem.

Sean Ward 20:57

Pretty wild.

Sean Ward 21:33

We are market in SoCal runs very strongly on landlord sentiment. And when you look at 2020, 21 and 22, rents were going up 5 % a month. And our vacancy rates were sub 1%. You know, I don't exactly recall, but I think OC was like 0.7 and mid counties was like 0.4. You know,

Jay Tanjuan 21:54

Mm-hmm. Okay.

Sean Ward 21:59

At that time, think of that, COVID run up, we probably had, I don't know, I put a spotlight on Southern California Industrial. We probably had twice as many operators come into the market saying, hey, we need SoCal Industrial in our portfolio. We probably had two, three or four times the amount of capital that was bouncing around the market looking for deals come into the market.

Jay Tanjuan 22:19

Mm-hmm.

Sean Ward 22:22

drove prices up and they were rewarded in their thesis of like SoCal industrial is a good market to invest in as they saw rents going up 5 % a month. I mean, we had clients building new buildings that were near completion that refused to put them on the market because it just made more sense to wait. But now as six months after Jay opened his shop here and June of 2022 hit,

Jay Tanjuan 22:38

Yeah. Hahaha

Sean Ward 22:49

And interest rates started going up and then we were dealing with interest rates, inflation. Then it was tariffs. Everybody's been kicking the can and waiting, but we're about to hit the four year anniversary of tenants pulling back in the market. It's wild. I mean, that is a long time. So I rightfully so I think tenants are like, I don't know, there's no deals happening in the market. Our business is still a lot of uncertainty. But

Jay Tanjuan 23:06

Mm-hmm.

Sean Ward 23:19

I think we all know based on the people in the market and the capital here, if we get some momentum, landlords will tighten up very quick. And to your point, Justin, it's hard to preach that message to tenants right now because if they don't have that historical context, it's hard to see that on the street and in the data.

Sean Ward 23:56

Yeah.

Sean Ward 24:14

Yeah, no doubt. No doubt. Yeah, there was a time in COVID, I think it was the first four months where we were working out rent relief packages for tenants. And then that stopped pretty quickly and it was a game on. know, the Fed dumped a ton of money in the market. Businesses were going crazy. The whole port thing. was a wild time. yeah, we should all go to bed at night praying for one more cycle like that, you know?

Jay Tanjuan 24:41

Yeah, just one more in our career. Yeah, I mean, but I think that was just, yeah, that was just a, we'll be super lucky we get one more. mean, it was just such.

Sean Ward 24:46

All please God.

Jay Tanjuan 24:56

such a perfect storm of all these things coming together as Sean mentioned. But that's what I guess makes it fun is just trying to figure out what's gonna be the next thing and maybe it's this advanced manufacturing story. How deep is this market? Other than Anderil, there's some others, but where are those? groups gonna come from and, but you can see it. mean, you can feel it happening. I mean, with AI and just the potential there, and all the industries that support AI and data centers, there's gonna be some need here and people wanna live here. That's why a lot of talent is here, despite all the difficulty with kind of... just labor laws and all that in California. But the talent is here, people want to be here, so that's always going to be a draw.

Sean Ward 26:03

100 % 24 million residents. That's not changing. Despite seems like our state policies driving people out by the day, but the 24 million residents are still here. The labor's here. Advanced manufacturing is the real deal. And it's supported by you think back, we were always a defense aerospace based industrial market. And

Jay Tanjuan 26:23

Mm-hmm. Yeah.

Sean Ward 26:29

You know, it's wild. You look at these buildings, the amount of capital that these occupiers are putting into the buildings, like advanced manufacturing isn't cheap. Like the build out in these buildings is insane. you know, I just heard a story of a group buying a building, not, not in SoCal. They bought a building for a hundred million and then proceeded to put 200 million into the building. I mean, it's, you know, the capital, it's capital intensive. yeah, I just think, I think advanced manufacturing is the real deal and it's not just Anderol.

Jay Tanjuan 26:37

Yeah. Wow.

Sean Ward 26:59

It's the whole ecosystem that supports them. So as Anderil keeps ramping up, I mean, we're, we're negotiating right now in a good chunk of space, representing a tenant. And they're one of these, you know, suppliers to one of these big names and they're on that same growth trajectory. So I think we've just started seeing that, you know, Anderil will go first and then the, the horde of suppliers comes after it.

Sean Ward 27:39

Hmm.

Jay Tanjuan 27:46

Yeah, then Sean, mentioned. Oh, go ahead. Sorry. Oh, yeah, I was just going to say you mentioned earlier, you know, just like these groups, you know, they're seemingly coming out of nowhere.

Sean Ward 27:47

And you think of the... Go ahead, Jay.

Jay Tanjuan 27:57

in like 5,000 square feet and then all of a sudden they need 500,000 square feet. you can imagine from a landlord's perspective, what does that credit look like? how, you know, so a lot of it is also selling the story and getting the landlord comfortable with the future. Because you can't look at necessarily what they have now, but it's like, we have these government contracts in place, these government contracts coming. And so we need the space. this is how much we need, we need to hire this many people. And oftentimes it's, know, the rent part of the equation is almost, you know, way down the, it's way down the list, secondary church, you know, and you got to get control of the building so you can have a business and secure all these contracts. Cause if you can't have a building, then you're not going to be able to fulfill the contracts and you're going to be in much, much more trouble.

Sean Ward 28:39

for sure. building and you have to have access to the power, right? It's kind of not good enough to say, we, you know, we could expand the power. It's like, well, what does that mean? Are you sure you can? mean, Jay, you're sitting, I think

Jay Tanjuan 29:01

Yeah. Mm-hmm.

Jay Tanjuan 29:13

Hahahaha!

Sean Ward 29:15

Yeah, you're sitting in a nice spot with the Garden Grove project because you're sitting on what, 8,000 amps, 10,000? I mean, insane amount of power. That's crazy.

Jay Tanjuan 29:21

Yeah, we get up to 10,000. you know, yeah, you know, and it's.

Jay Tanjuan 29:30

Right. Yeah, so that goes back to the location thing, you know, because you have to be in the right location and a lot of those groups want to be around groups like them. So that's a big, big part of it.

Sean Ward 29:52

Agreed.

Sean Ward 30:11

Hmm.

Sean Ward 31:08

I think landlords are open to taking calculated risks with tenants and their credit today. I think you have to be, I think you're staring many months, not, I hate even to say it, but years of vacancy in the face with some of these projects, brand new buildings. That's not too appealing. figuring out how to solve the credit risk, think landlords are open.

Jay Tanjuan 31:27

Mm-hmm.

Sean Ward 31:54

Yeah, 100%. We did a deal with a startup EV company and they didn't have great financials and they leased 100 and 120,000 square feet in a building that we represented the landlord on and you know, ultimately, we're able to get out of them a year of prepaid rent on a five year deal. And again, it was the calculus was okay, we don't love the financials, but what they're doing inside of the building doesn't seem to be you know, terribly disruptive to the overall structure of the building, mostly just warehousing. And we get a year of prepaid rent. So we feel good. You know, fast forward. I think the company made it 18 months, maybe 20 months on a five year term. Landlord gets the building back. But again, there's a good belief that, if we didn't do that deal, we may have just sat that entire time until now vacant because there's certainly other buildings on the market that did that.

Jay Tanjuan 32:50

Right. Yeah, and that rent, yeah, that rent that you got back then was also higher than what you would, know, yeah. So, you take that into account and then, yeah, you just take the risk there on that one.

Sean Ward 33:01

Strong, yeah.

Jay Tanjuan 33:47

Yeah, think they're like for the LP capital, they're still very cautious. You know, they're not all in yet on development deals. There's a few here and there that that are looking to lean in. But, you know, I think for the most part, you know, they're You know, lot of the LP Capital, think, you there are so many different product types. They're spread out across the country. You know, they're relying on, you know, Sean and, you know, myself and groups like us, you know, to help educate them on where the market's headed. So I think they're a little bit slower to just, you know, react. Whereas like, you know, Sean... could be beating the drum like, hey, now's the time to do stuff. And it takes a while to kind of get to that level where the capital's come through. Yeah, so it's always a challenge. I think everyone, it's kind of natural too to kind of look around, see what everyone else is doing and making sure you're not the only one out there just kind of doing your own thing and going against the grain.

Jay Tanjuan 35:04

So it takes a while before that to kind of really pick up some momentum and people start to feel comfortable again. But I think also by the time you get comfortable, it's already a little bit too late, you know, because the market's already humming at that point. So, you know, that's why I'm like, I feel like at least in Orange County, L.A., we bottomed out at some level. Like we feel pretty good about where lease rates are today.

Sean Ward 35:19

Mm-hmm.

Jay Tanjuan 35:33

So that helps with our underwriting. We don't generally feel that they're just going to fall off a cliff again. So that helps with our underwriting and projections moving forward because how you value a building is really what's, you know, got to get a good credit tenant in there and what are they going to be paying in rent over the next five, 10, 15 years and then making a return based on that. So the stronger the tenant, activity is and stronger rents start to become, then you'll see more of the capital come back. But for the time being, I think people are just picking their spots on, know, site has to have a story. Like, is there advanced manufacturing story there? And can you defend it? And can you back it up with lease rates and this, you know, that sort of thing to be able to justify? paying what you're going to pay. Some people are able to justify that right now because that's why you're seeing very competitive, openly marketed deals right now throughout L.A., Orange County, and even into San Diego. And so that's been, I think, an interesting development. But it's going to be a little bit before capital comes back like it was in the last four years or so. when it was almost a commodity, you know, but now it's really difficult to get.

Sean Ward 37:11

Yeah, yeah, I mean, Justin, they're everybody's looking at folks like you and me. It's like it all starts with leasing, you know, it's like, what is it? What is happening?

Jay Tanjuan 37:20

Yeah.

Sean Ward 37:23

We've had you we've all been fooled, I think over the last four years thinking like, all right, the market's doing great. You know, Liberation Day hit was that last year? I mean, it liberated all the deals I was working on. I could tell you that like they just went away. Right? Like that. Without getting into politics and love them or hate them, we've got a president who is

Jay Tanjuan 37:35

Mm-hmm.

Sean Ward 37:49

know, a little chaotic, unpredictable. But I do think, I think the market overall, you talk about like the Wall Street, the market and you know, the real estate markets, the companies that occupy and produce things and make things in our economy seem to be getting used to the ride this really wild ride we're on, and maybe just kind of pushing through it. I mean, we started a freaking war in the Middle East.

Sean Ward 38:18

six weeks ago, and you wouldn't know by looking at the stock market. You wouldn't know by looking at the deals that are getting inked right now in the real estate market. So it is kind of interesting. I wonder if people have just become acclimated to the craziness. And it's part that and it's part again, we're right at the four year anniversary of when people hit pause. Companies go out of business if they don't grow. You know, how long do you pause? You know, you just can't.

Jay Tanjuan 38:46

Right. Yeah.

Sean Ward 38:47

You can't pause forever. So I think it starts with us. I think it starts with the and not us, but you know, we're closest to the tenants. It's all about the tenants at the end of the day. We're closest to the tenants and their their decision making their thinking. It feels like it feels like tenants are okay with moving forward, but it is really scattered. It's like the real high end of the market. Your fortune 100 and then

Jay Tanjuan 38:56

Mm-hmm.

Sean Ward 39:14

I wouldn't say low end of the market, but just the unknowns. Like the all private equity backed, lots of investment capital backed, but not brand names that anybody's ever heard of. But those are all the technology related companies. So everybody else in the middle, I think is still waiting to see.

Jay Tanjuan 39:25

Mm-hmm.

Sean Ward 39:38

Yeah, indeed. Indeed. Those groups in the middle, I think it's a mixed bag. I think we're seeing tenants like I'm doing a deal right now or a tenant's going to lease 85,000 square feet, which is great. Building that's been sitting on the market. But they're coming out of a 200,000 square foot building, which hit the market, right? We represented a landlord on leasing 230,000 feet up in Fullerton a month or two ago.

Sean Ward 40:08

which is great, but that tenant was moving out of a 400,000 square foot building, right? So that's why we're seeing our net absorption numbers are still negative. I mean, close to on par, but still negative. Like the activity is great, but the net effect on the market for everybody in the middle, it's still up in the air.

Jay Tanjuan 40:34

You

Sean Ward 40:36

Yeah. Yeah.

Jay Tanjuan 40:37

And then I think just the disparity in rents, like for the different types of tenants. If you're an advanced manufacturer, you're paying north of $2 a foot. And then if you're a run of the mill, you know, three PL, you know, it's a different number. You know, what is that? You know, and some class A buildings that have been sitting there that could be, you know, about 30, about 40, about 50, you know, depending on what market you're in. So it's, that's, I think just been really interesting that, you know, these groups are paying whatever it takes to... to lease the building and then, you know, while there's so much, there's so many other options, but I guess that just goes to show, you know, going back to the location part of it and then the power part of it and, you know, the labor situation, the people, if they have those, you know, then it's a different equation for them. Whereas, you know, just the regular, you know, warehouse distribution tenant like we're used to in our market, you know, they're paying kind of more of the market rate.

Sean Ward 41:49

which is hard to define. Yeah, that market rate. Yeah.

Jay Tanjuan 41:51

Yeah, right, yeah, exactly, yeah.

Jay Tanjuan 41:59

Yeah. Yeah, because there's plenty of buildings where landlords feel it's because they have certain things that it should be a rate, a higher rate, but the market maybe not there yet or does not see it the same way. And so you see some of those buildings sitting as well.

Sean Ward 42:32

The whole issue of power, think that's gonna evolve too over the next handful of years. Prologis, I think, is looking at a program right now where they're doing on-site power generation. I don't even know how, but that Velar Atomics Group that just leased a half a million feet, I mean, these are like small modular nuclear reactor power generation things. Again, I am way out of my depth to even talk about it, but there are, solving for...

Jay Tanjuan 42:45

Mm-hmm.

Sean Ward 43:00

hey, we got to get power and we're just waiting on Edison to deliver it. And they don't know if they have enough on their grid. mean, there's workarounds for that happening now, which is, it becomes very interesting. I think you boil it all down to the thing that isn't going to change very easily is the proximity to the labor, like the buildings in close proximity to where the people are. I think that that's, that's a tough one to solve for. So I'm still betting heavily on the infill markets for that reason.

Sean Ward 43:50

No doubt. Guys, we're all just guessing until the robots take over and do everything for us. And warehouses are out in the desert with autonomous trucks. Until then, we keep going.

Jay Tanjuan 43:58

Ha ha! Yeah, yeah. Yeah, I used to think Terminator 2 Judgment Day was like impossible. What is that? know, like great movie, but just thought it was never in the likelihood of possibility. But, you know, you kind of look at it. I mean, if AI gets, you know, it's we're just scratching the surface here. mean, it could get to that point, right? If we don't if we don't figure out a way to harness it and control it, you know.

Sean Ward 44:11

Thanks So realistic now.

Jay Tanjuan 44:33

So.

Sean Ward 44:34

Go back and watch the Matrix. just had my wife and I had our 15 year old. We watched it with them. I mean, the whole thing was about like, you that's when AI took over. Everything went crazy. Yeah. And it was all about power and power generation AI. It's funny.

Jay Tanjuan 44:37

Yeah. Right. Yeah.

Jay Tanjuan 44:51

Yeah. Yeah.

Sean Ward 44:51

Yeah, yeah, right. It might have happened. Who knows?

Jay Tanjuan 45:10

Hehehehe. Hehehehe. I think it's going to be sooner than we think. I'm going to say 2027. It's probably a bit aggressive, but I just think it's going to be sooner than we think. know, Sean's talking about the labor story, but you know, obviously, you know, there's a way to solve that problem is with more automation and then more robots. you know, and I've seen companies that are doing that sort of stuff with human type. robot. So I think that's going to happen. You know, the driverless taxis are happening, but I've also been talking to companies that are actually doing flying taxis. So, and they have momentum on kind of their business and it's just hard for me to imagine that happening soon, but it's going to happen. It's hard to say how quickly, but I'll go out on a limb and say 2027 for your robots.

Sean Ward 46:29

There's robots all over industrial buildings in our market. I just saw a photo of one of Rivian's manufacturing facilities. I mean, the insane amount of robotic manufacturing that's happening in there. The humanoid just walking around lifting up boxes. I don't know. My mindset would be 18 months, but notice how none of us are even contemplating that that won't happen. mean, Elon is talking about.

Jay Tanjuan 46:47

Yeah. Yeah.

Sean Ward 46:57

that there'll be more robots than humans, you know, eventually. So that it seems something that is inevitable. And, you know, I'm very much, I try to be optimistic with the technology and AI and robots and all that. I'm very much trying to adopt it and get on board. I think there's people who are like, is not gonna be that big a deal. I just think. You know, a lot changed for me six months ago when I bought a Tesla and now I never drive again. My Tesla drives me everywhere. You start to believe in technological advances, you know, very quickly when something like driving isn't something I just don't do it anymore. Extrapolate that out across every area of what we do and the way we live. It's going to be wild. I'm really excited. I'm happy. I was born in 1980, right? So This is before all technology. still remember my home phone number, you know, growing up when I first started in the business, I was rubbing little dots on maps for tour books. Like we, grew up like in prehistoric times and now we're seeing cars that drive us and AI. It's a wild time to be alive.

Jay Tanjuan 47:54

Mm-hmm. Heheheheh... Hahaha! Yeah.

Jay Tanjuan 48:33

Yeah, well said, Justin. Yeah, thank you. It's been great. All right.

Sean Ward 48:33

Thanks for doing this, appreciate it Justin.

Sean Ward 48:36

Thank you guys.