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NEWPORT BEACH, CA—With Q4 underway, many industry professionalsare looking at what's ahead in order to leverage the currentmomentum of the market. As recovery expands and activity increases,GlobeSt.com recently asked managing directors at locally basedVoit Real Estate Services to weigh in on what therest of 2014 and the start of 2015 will have in store forinvestors, owners, and operators of commercial properties.

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“The main trend to look for in Q4 and beyond is a continuedtightening of the commercial real estate market throughout theWestern US and in many markets, a real scarcity of legitimatechoices,” says Eric Hinkelman, executive managingdirector for Voit's Orange County, Los Angeles and Inland Empireoperations. “A period of consistent job growth, rising lease ratesand positive absorption has been underway in most markets for awhile now, and commercial real estate professionals need to makesure they are educating their clients well in advance of leaseexpirations and perceived needs…not just a few months before, onlyto find out they will have very few, if any choices.”

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Eric Northbrook, managing director for Voit'sSan Diego operations, agrees, and says that “Job numbers are up andthe national unemployment rate is now at 5.9%, which is the firsttime unemployment has been below 6% since July 2008. Employment growth is the key to fueling the current momentum in themarket.”

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As employment grows, so will demand, notes IanBritton, managing director for Voit's Southern Californiaoperations, who says that he expects to see increasing tenant andbuyer demand coupled with more investment capital specificallytargeting industrial real estate in infill markets during Q4 andearly 2015.

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“When the Southern California market first started to recover in2011, most of the activity was confined to larger industrialbuildings, above 50,000 square feet. Larger companies withbetter access to capital took the opportunity to upgrade thequality of the buildings, become more efficient across their supplychain, and lock in favorable occupancy costs,” he says. “As themarket moves ahead in Q4, smaller businesses—the backbone of ourlocal economy—are now taking the baton, fueling an increase inactivity in smaller industrial buildings.”

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Britton notes that industries serving an improving residentialmarket, such as tile-related users, fabricators, specialtycontractors, etc., will continue to come back in a big way over thenext two to three quarters.

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“In Orange County for example, specialty manufacturing, tech andlocal distributors are already competing with each other forexpansion space in an industrial market with very fewalternatives,” he explains.

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Britton also says that, with interest rates being as attractiveas they are, a majority of activity in Southern California is fromlocal buyers, sending sale prices near peak levels andclimbing.

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He continues, “Lease rates are primed to spike given thehistorically low vacancy rate. For example, the vacancy ratefor industrial buildings under 10,000 square feet in Orange Countyis a slim 1.26%. Lease rates could certainly pop at a moreaggressive pace if interest rates increase, making the cost ofownership less palatable for small business owners.”

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In addition, he notes that the price of industrial land hascracked $30 per square-foot in Orange County, and with risingconstruction costs and developers unable to get suitable sitecoverage, he anticipates little to no activity in the developmentof smaller buildings over the next two to three years.

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“Existing industrial inventory, if functional, will only becomemore valuable,” Britton says.

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Property values are also rising in the Phoenix market, whererapid market growth is underway, according to TomJohnston, managing director of Voit's Phoenix and LasVegas operations.

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“With a favorable business climate spurring demographic growth,the Phoenix market is one of the fastest growing in the country,”he says. “We continue to see a decrease in the amount ofvacant and available space on the market, even with new productbeing delivered. As we progress through the last quarter of2014 and into 2015, positive absorption and higher occupancy costsshould continue, resulting in ongoing market improvement.”

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Kevin Sheehan, managing director for Voit'sSacramento operations, says that ongoing improvement is alsoexpected in the Sacramento, California market, where office, retailand industrial markets have been demonstrating steady growth.

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“The third quarter of 2014 marked the lowest office vacancy ratesince 2008 in Sacramento, while the local industrial and retailmarkets continued to post positive absorption,” he says. “Weanticipate growth in each of these sectors over the next fewquarters, as well as job growth of around 2.1% in the Sacramentoarea by 2015. These factors will further fuel the tightening of themarket.”

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Overall, each of Voit's managing directors note that the outlookis good for commercial real estate market growth throughout Q4 andearly 2015, and they agree that now is the time for action.

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“The market as a whole will continue to tighten and those whokeep their finger on the pulse of this movement will emerge as mostsuccessful and valued by their Clients” says Hinkelman.

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.