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Allen Buchanan: Industrial property snug and troubled by supply issues

I was honored to be interviewed during a recent meeting of the Realty Investment Association of California.

My thanks to Lew Elliott, Mel Wagstaff and Nick Lieberman for the kind invitation. All are avid readers of this column, BTW.

If you’re unfamiliar with the organization – here’s a brief history, according to their website:

A small group of investment specialists led by Art Turner and Woody Johnson formed the Investment Division of the East Orange County Board of Realtors in 1968. Their goal was to share ideas and cooperate in marketing investment properties. Today, RIAOC members come from several Southern California counties. The association provides seminars on investment real estate and related subjects. They promote cooperation among real estate agents, maintain high standards of conduct and professionalism and protect individual rights of real estate investment and property ownership.

If you’re so inclined, you can listen the entire interview by clicking the link.

Here are the Clif Notes from our chat.

How will the Green movement affect industrial real estate?

Industrial real estate comes in two main flavors – manufacturing and logistics spaces. The former is used to make and ship things – the latter to stage, store, and ship. In both genres, raw materials or finished goods must arrive and finished merchandise must leave. Trucks do this. Anything that causes a disruption in trucking creates a kink. Regulations such as the bus and truck law, Assembly Bill 5, or all-electric vehicles by 2030…yeah, you get the idea.

Has the pandemic caused an increase or decrease in activity?

We hit pause for 60 days and then the turbo-charge button was pressed. Already experienced – pre-2020 – were record low vacancy rates. With the pop in demand, because folks are buying items, there is very little vacant inventory.

What’s happened to cap rates? They’re the lowest I’ve ever seen – in some cases below 3%.

Where does occupancy stand? True vacancy – empty buildings – stand at less than 1%. Yep. 99 of every 100 are occupied.

Critical amenities with logistics buildings. Warehouse clearance – minimum 30 feet, hefty sprinkler systems to stop a fire in the warehouse and ample area for arriving, staging, and unloading trucks.

What data sources are used to gather market information? We use anecdotal, proprietary, and third-party sources. But data these days is a commodity – everyone has access. The “story” is what every owner and occupant seeks.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.


Source: Orange County Register

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