OC Industrial:
All Revved Up, No Place to Build
Written by: Real Estate Bisnow 3/31/2014
|
Tight. In a word, that's
the Orange County industrial
market. (We would also have accepted "industrial.")
Despite increasing demand, supply is
hard to develop, according to experts at
Bisnow’s third annual State
of the Market at the Hotel Irvine recently, which drew 450.
Panattoni Development CEO Adon Panattoni says
there’s a lack
of sites in Orange County for industrial
development, though there are a few. Even on those, developers can’t just
build anything
and expect it to be leased, since OC’s competing with its neighbors, the Inland Empire in
particular. (One roof and four walls is still considered the industry
minimum.) Heads of companies might like to be in OC, but they might also
see the Inland Empire is an acceptable
alternative, especially since it’s usually less expense.
CBRE senior managing director Kurt Strasmann says
Orange County has the second
lowest vacancy (2.9%), out of 51 markets his company tracks;
the national average is 8.2%. Fortunately for OC landlords, it's also low in
LA County (No. 1 lowest at 2.3%) and Inland Empire (4%). Because its land is
constrained, Orange County is an industrial
infill market, and hard for investors and developers to break
into.
Overton Moore Properties is an industrial
developer and investor in California and recently in Phoenix. CEO Timur Tecimer says land is too expensive
in much of Orange County for most warehouse/distribution developments. That
kind of development is heading
east. Complicating matters in OC is that certain cities are
relatively hard to work with. That demands a high level of local expertise.
Sares-Regis Group focuses on large
industrial projects on the West Coast. Managing director John Hagestad says lenders would prefer
that a developer already have its entitlements
sorted out before committing to financing, but there’s so much capital now
that lenders are more willing to come in during the development process,
when there’s some entitlement
risk. He also predicts there will be a wave of conversion from
older, less useful OC industrial space to office space, maybe for tech users.
(Make sure they don't get rid of the forklifts, for fun office parties.)
KPRS president Joel Stensby says he
doesn’t expect construction
costs to rise that much—maybe a 3% increase over the
next 12 months. One reason is that other countries aren’t buying construction materials
with the same appetite they did four or five years ago. In the current
climate, it’s harder to find qualified
labor, so it pays to have strong relationship with
subcontractors.
Prologis president-Southwest region Kim Snyder says large industrial spaces
are being leased in Orange County, even though logistics is moving away. Smaller industrial
product is not being leased or developed as much because residential growth hasn’t returned in a
robust way. That means the likes of lighting companies, tile suppliers, and
door installers haven’t returned to the market. (Same for white picket fence
makers and American dream catchers.)
Allen Matkins partner Bill Ahern
moderated. Bill's practice primarily focuses on the structuring, formation,
syndication, and taxation of partnerships
and LLCs formed to engage in complex real estate
transactions. Bill also has extensive experience in structuring 1031 exchanges and TIC agreements.
|
|
Kevin Thomas is a Senior Vice President / Principal of Lee &
Associates-Newport Beach, Inc. Kevin specializes in Industrial and Office
brokerage in the Airport area of Orange County, California
