IRVINE, CA—Short-term seasonal warehouse space is hard to find in today's tight market, and landlords are not eager to lose a longer-term lease due to a short-term user, CBRE SVP Ben Seybold tells GlobeSt.com.

We've heard of pop-up retail space, but so-called pop-up industrial space is the new solution to solve the problem of seasonal surges in inventory levels. New models allow for landlords with excess warehouse space to be matched up with retailers needing temporary space. We spoke with Seybold about how pop-up industrial works in Orange County and how issues with this space are resolved.

GlobeSt.com: How does pop-up industrial work in Orange County?

Seybold: Retailers often have a build-up inventory to serve customers during the Christmas surge, so they need extra space. One culprit of that type of need—and it happens every year—is a company called Houdini, which sells wine-country gift baskets. They come into a need in September or October through mid-December and are seeking footprints of between 50,000 square feet and 100,000 square feet. We can't line up the timing perfectly—we don't know who will need it or where it's going—so these folks need shadow or sublease space, and it can't be on a month-to-month basis because they only need it for 60 to 120 days. They don't want to sign a five-year lease and have the building vacant 10 months of the year.

Often, a broker will get a call from one of their listings, either a principal or the broker representing the client, saying they need the space tomorrow. It's done on a license agreement, not typically on a true lease document, but a short-form document. It's an efficient way to do it in a market where vacancies are under 2%. It's hard to find space on the market, so we have to call and dig with folks that have large facilities and ask if they have up to 100,000 to fill a seasonal requirement. It takes a lot of work, and you're almost doing it as a favor for the client. It's not very profitable to the broker, but it's a way for the broker to help establish a relationship with a client who may have a larger permanent need. We have a lot of major accounts we service, and we have to take the good with the bad and help our clients out.

GlobeSt.com: How do landlords view this type of agreement?

Seybold: It's the age-old conundrum: the landlord wants stability, and the tenant wants flexibility. Products and volumes fluctuate wildly. Often, a 3PL company can provide value-add services, and when the contract expires or the service is no longer needed, the tenant is able to walk away without a lease obligation hanging over their head. Pop-up industrial is really on a seasonal basis, when the product is in really big demand. It's a popular service.

GlobeSt.com: What other issues come up with seasonal surges, and how are they resolved?

Seybold: One of the issues is that often a landlord will want to have the space available for a tenant who might come in and sign a long-term lease. With rental rates higher than ever—we've surpassed '07 rental rates in this market—landlords want to capitalize on that with long-term lease. A lot of this pop-up industrial gets satisfied with shadow space, with tenants that have surplus space in their warehouse or building.

GlobeSt.com: What else should our readers know about pop-up industrial space?

Seybold: We're in an interesting situation: we have a tight market where it's hard to find this space. E-commerce makes the market tighter, but if it should loosen up for some reason, landlords would be more open to pop-up industrial's short-term, flexible nature. But right now, most landlords are wanting to do long-term leases.

GlobeSt.com: How does pop-up industrial work in Orange County?

GlobeSt.com: How do landlords view this type of agreement?

GlobeSt.com: What other issues come up with seasonal surges, and how are they resolved?

GlobeSt.com: What else should our readers know about pop-up industrial space?

Instant Insights /

Pop-Up Industrial Presents a Conundrum

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