As space shrinks, options for businesses get creative

As I’ve written countless times, commercial real estate practitioners are either the hunter or the hunted.

By that I mean the nature of our assignments varies. Examples: searching for suitable opportunities for our clients to lease or buy – the hunter – to marketing available buildings – the hunted.

You may be wondering, aren’t both tasks in effect hunting? If an owner hires you to locate a tenant or buyer for their vacant location, don’t you hunt? Actually, no. Available space is in such short supply that an owner assignment is tantamount to a blue-light special. It’s a mad dash to the exits.

Managed are myriad tour requests, multiple offers and bidding wars — thus the moniker of hunted.

Year to year, the percentage of owner-to-occupant representation varies. Last year, as an example, the majority of our work was representing tenants. The complete opposite has occurred this year. But despite that ratio, we’re busiest fulfilling occupant’s needs.

Recently, we were asked to compete for a tenant representation assignment. I believe what we discussed would be informative for my readers – so here goes.

Fortunately, our prospect is flexible and has allowed plenty of time to conduct an adequate search. By flexible, I mean they’re able to stay in their existing address, relocate within Orange County, move inland or even move out of state, if necessary.

Regardless, required is a location in the OC so if alternative one or two don’t happen, we’ll have to source a suite of offices locally in addition to their warehouse. We did a similar deal last year whereby the owner was unwilling to build enough office space within the warehouse to accommodate our headcount, forcing us to split the operation.

The good news? If a separate office configuration is needed, they’re plentiful. Unlike the frenzied pace and low vacancy of manufacturing and logistics buildings – office suites are begging for tenants.

So what’s important for the prospective operation? Port access was key as their products are manufactured overseas and shipped in. Modern warehouse amenities also will allow them to rack and stack. And a central location to afford access to their distributors was desired. If their lease isn’t renewed or relocated close by, we’ll need an office suite to house twenty folks.

So, what are their options?

Certainly, staying put has its benefits. A costly move — which is disruptive and inefficient — is avoided. Employees, suppliers, truckers and the like know their location.

Generally, a landlord realizes the cost of finding a new occupant and will be motivated to keep an existing tenant. The downside is their warehouse clearance is skinny, which means more floor space must be leased to store the same amount of goods as a smaller, taller space. Because owners charge by the floor square foot not the cube, a smaller taller space could be cheaper.

A relocation within north or south Orange County will be challenged today by the lack of available Class A inventory. But, that landscape is changing. Close to 2.7 million square feet of newly constructed logistics buildings soon will dot the basin from Brea to Orange to Fullerton and Anaheim.

The Inland Empire holds some possibilities, whether that’s in the eastern region with Chino, Ontario, Eastvale and Corona or western locales such as San Bernardino, Perris, Riverside and Moreno Valley. The majority of stock in those areas was built after 2004 with a logistics provider in mind.

Plus, a lot of new walls are being tilted and will be ready for occupancy by early 2023. Port proximity and new regulations against trucking are the storm clouds on the horizon.

Finally, a move out of state to neighboring Nevada or Arizona appears to be attractive. Both are exceeding California’s pace of new construction and can be quite inviting for California companies that are frustrated by local politics and the expensive cost of living.

But, as I warn anyone considering a move away from California, other places are not simply California with cheaper housing and a lower tax rate. There are real cultural, economic and political differences to be considered.

Options abound and we look forward to providing our advice. The journey should be quite interesting!

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