RIck Ellison Ellison: “Last-mile-delivery demand will put future pressure on the limited industrial supply, which will likely reduce already historically low vacancies and cause rents to rise.”

ORANGE COUNTY, CA—Many older class-B industrial buildings are grade level, which allows vehicles to drive through them loaded with parcels, and these assets typically have more land, which allows for vehicle staging, Rick Ellison, executive managing director, industrial brokerage & global supply-chain solutions for Cushman & Wakefield, tells GlobeSt.com.

The firm recently released its Q4 Orange County industrial report, in which Mike Adey, a senior associate with C&W’s industrial capital markets and brokerage in Orange County, said, “Orange County industrial market fundamentals have never been stronger. The county is experiencing never before seen vacancy rates at just 2% at year-end 2016, coupled with historic high levels in lease rates—even surpassing peak rents from the previous cycle—while leasing activity remains robust despite scarce supply. There is tremendous demand from occupiers for industrial space, but insufficient supply to meet tenant demand. With a lack of available land for new development, entitlement issues and rising costs, the region also has significant barriers to entry for new industrial product, thereby exacerbating supply constraint. Adey continued, “In cities such as Irvine, Tustin and Costa Mesa we are generally seeing a rising trend in the transformation and upgrade of older industrial product into more functional and modern, high-quality space to better compete in the marketplace. However, we are not yet really seeing this occur in all areas of Orange County. We think final mile e-commerce-oriented tenants will utilize some of these older buildings, despite their functionality flaws, simply based on their locations that are becoming more and more critical to their evolving business models.”

We spoke with Ellison about the repositioning of older industrial properties in satisfying last-mile delivery demands throughout Orange County.

GlobeSt.com: Will we see more repositioning of older industrial properties in satisfying last-mile delivery demands throughout Orange County as these demands rise?

Ellison: Yes. Some older buildings that we classify as “B” buildings are well suited to accommodate last-mile delivery uses because older buildings are typically grade level, which allows vehicles to drive through the building and loaded with parcels. Older buildings also typically have more land, which allows for vehicle staging.

GlobeSt.com: What factors could lead to industrial-property upgrades in more areas of Orange County?

Ellison: The last-mile delivery logistics strategy follows similar rules to the retail industry in that the ideal locations are near residential density. We may see non-traditional warehouse locations converted to fulfill e-commerce orders.

GlobeSt.com: What other impact could last-mile delivery needs have on industrial-property stock?

Ellison: Last-mile-delivery demand will put future pressure on the limited industrial supply, which will likely reduce already historically low vacancies and cause rents to rise.

GlobeSt.com: What else should our readers know about last-mile delivery in Orange County?

Ellison: Orange County has a large and affluent consumer base, which is the ideal demographic for e-commerce companies. We expect more demand for final-mile distribution facilities to fulfill the growing e-commerce-delivery demands. Further, Millennials and subsequent generations will continue to rely heavily upon online shopping and fast delivery times, which will only propel the need for last-mile delivery for years to come.