It is an interesting commercial real estate market out there. Office space is careening toward co-working spaces and creative expressions while vacancy rates range from 7% in Santa Monica and 17% in downtown Los Angeles (guess where the better deals are!) The retail landscape is shifting from merchandise to service and hospitality but no, the shopping center is not dead. Think of retail real estate like an open bed tomato truck: the industry is taking a sharp right turn and some of the tomatoes on top will fall out and make a splatter on the pavement but most of the load will make it to market.
The real surprise is industrial, that boring mule of commercial real estate. Vacancy rates in Los Angeles and Orange Counties are currently below 2%. That’s right…2%.
There are a multitude of reasons for the tight conditions: old industrial buildings are being redeveloped as apartments or repurposed as creative office – think Silicon Beach and the Arts District in downtown L.A. With the supply of undeveloped land naturally shrinking, industrial land is being priced out of the range that makes sense for industrial development. And staring this shrinking inventory in the face is increased demand from “last mile” distributors fulfilling the delivery promises of Amazon and other merchants trying to compete.
The guidance I give my clients is to be patient. If we don’t find the property that suits your needs on our first dive into the market, don’t panic. My job is to keep my ear to the ground and scout properties as they become available. But when they do, don’t hesitate! I reported to one client looking to move their film industry special effects firm to Pasadena that a space had come up in a location they really liked. The client said “Great…I’m leaving town for a week but when I return, let’s take a look.” By the time he got back to town, the space was leased.
The role of a good tenant rep broker is to educate his or her clients on the reality of the submarkets they want to be in. If you are looking in downtown L.A. for office space, you have tons of choices. If you’re looking for a warehouse space in Glendale or Torrance, be sure to budget in an extra month or two to find it.
Keep it real and do the deal.