ORANGE COUNTY, CA—GlobeSt.com exclusively chatted with three executives at Voit Real Estate Services throughout the Orange County-based firm’s western region on a recurring description that has emerged across most markets… “Slow and steady.”
Are markets improving? “Slow and steady.”
Are values rising? “Slow and steady.”
While economic fundamentals continue to improve in this same manner, the experts we spoke with say there is one sector of the market that appears to be outpacing the rest—industrial.
“We’re past the low point in the industrial market, and we’re on our way up,” explains Kevin Higgins, anEVP in Voit’s Las Vegas office. “The good news is, the upswing will be very sharp.”
Higgins notes that even in Las Vegas, where recovery was slower than many other areas of the country, the industrial market is now demonstrating its resilience.
“Values are rising, and with healthy demand from tenants in the market, industrial investors are now willing to pay more for properties in Las Vegas than they were over the past few years,” he said.
With this willingness comes an increase in activity, according to Higgins, who said that investors are moving quickly to take advantage of ongoing low interest rates and the relative affordability of product in this market.
“New investors and investment companies have been entering the market, many from the Southern California marketplace, which is a strong driver for Las Vegas,” he explains.
In addition, Higgins notes that many large companies have emerged as buyers in Las Vegas, including Blackstone, Prologis, Oaktree, and Hines, among others.
“Confidence is growing throughout the industrial sector, which will contribute to the increasing speed at which the market will improve,” Higgins says.
Growing confidence is also evident among industrial tenants in the San Diego market, according to Randy LaChance, a SVP in Voit’s San Diego office.
LaChance explains that growth in the housing industry, as well as in niche industries such as craft brewing, is boosting demand for industrial tenant expansion in San Diego.
“Tenants are aware that the San Diego industrial market is in the process of converting to a landlord’s market,” he explains. “For that reason, many tenants are seeking out longer-term leases and working to secure industrial space now.”
LaChance notes that, based on the high cost and low availability of land, new industrial construction will be extremely limited in San Diego.
“With no new construction, industrial lease rates will rise, and we will see a further tightening of the San Diego industrial market as it continues its upswing,” LaChance says.
In Orange County, overall market tightening is already well underway, according to Mike Bouma, a SVP in Voit’s Anaheim office, who notes that the tremendous amount of capital pursuing deals on both an owner/user and investor basis is driving industrial prices up substantially.
“Orange County industrial investors need to be open-minded in today’s market,” Bouma says. “A successful investor in the current market will be prepared to take on lease-up risk, down time and rollover expenses in order to be able to make a deal happen.”
Bouma notes that tenants, too, must be flexible in today’s tight industrial market.
“Industrial tenants should give themselves plenty of time in advance of their lease expiration in order to locate and negotiate on a new facility,” Bouma says, explaining that there are simply fewer options in the market compared to three to five years ago.
Alternatively, Orange County industrial owners are now in a strong position, according to Bouma.
“We are seeing much shorter lease-up time and fewer tenant concessions in today’s market; an ongoing indication that the market is quickly improving,” Bouma explains.
Overall, industrial markets throughout the Western US are improving quickly, coinciding with ongoing improvement in national economic fundamentals. Voit’s experts note that industrial investors and users in particular should be aware that further tightening is anticipated, and that now is the time to acquire industrial product and negotiate industrial lease terms.