What Adaptive Reuse is Doing to Industrial

NEWPORT BEACH, CA—While conversions from industrial to creative office, mixed use or multifamily tighten the already constrained industrial supply even further, they are allowing for higher and best use as well as higher-paying jobs, CBRE's senior managing director Kurt Strasmann tells GlobeSt.com. The firm's Carol Trapani, Ben Seybold and Sean Ward recently represented seller Doyle Properties LLC, and CBRE's Brad Bierbaum represented buyer American Technologies Inc., an owner/user in this transaction, in the sale of a 144,000-square-foot industrial building in Anaheim, CA, for approximately $16.6 million.

The property, located at 3360 East La Palma Ave., contains approximately 85,000 square feet of warehouse space and 48,900 square feet of office space.  American Technologies plans to rehab the facility, last purchased 30 years ago. The building is located within Anaheim's Canyon Business Center, a prominent local business corridor. The building features major street frontage and is in proximity to the Metrolink train station.

According to Seybold, “We were able to uncover a buyer who needed a corporate headquarters facility and was willing to transition the property from a common manufacturing building to a high-image corporate-headquarters facility.”

Despite the Orange County industrial market's historically low vacancy and declining available supply, overall market fundamentals remain strong with continued high demand for sale and lease requirements, according to CBRE Econometric Advisors. The lack of development has pushed down availability of quality space, therefore increasing average sale prices for industrial product, with a consistent upward trajectory as evidenced by an 8% year-over-year increase at the end of the fourth quarter, setting a new market high.

We spoke with Strasmann about adaptive reuse of industrial and how it is affecting the already-low industrial stock in this market.

GlobeSt.com: How common is adaptive reuse of industrial/office to high-end corporate headquarters building?

Strasmann: This has been going on for some time. Much of the industrial space in South Orange County and the Airport area has transitioned to multifamily, mixed use, office and creative office. As manufacturing in some of these areas has phased out, the demand has been there for these uses. There are certain markets that are more oriented toward creative office than others, so South Orange County is seeing it more. North Orange County is more traditional industrial. But it is happening because in theory these markets evolve to a higher-end use over time. If you can convert a property to a higher-end use to achieve a higher rent, you're motivated to do it. Not all properties are capable of doing this—office use takes more parking, and the site has to lay out, but you'll see a lot of it in areas like Irvine and Costa Mesa.

GlobeSt.com: What is adaptive reuse doing to the existing industrial stock, which is already in short supply?

Strasmann: It's a good thing because our economy is changing. It's moving toward higher-paying, more-skilled jobs, and that use is usually toward a higher-paying professional company.

GlobeSt.com: In short, is this a good thing or a bad thing for the market?

Strasmann: It's good if you own industrial because you're taking product away. The supply is constrained, and this is exacerbating the availability factor for industrial tenants, but it's also bad for our market because industrial tenants have to go somewhere. In the Los Angeles market, West L.A. and Culver City have been doing this for a while. For office, it's very tech based, but we've also lost a lot of product to multifamily. It seems like this will continue because, in today's world, it seems like there is a heavy demand for it.

GlobeSt.com: What else should our readers know about adaptive reuse in tight industrial markets?

Strasmann: Some industrial buildings are being designed to include a larger percentage of office buildout. On large, newer buildings, you might have 3,000 square feet to 5,000 square feet of office. Users want a higher-image building.

NEWPORT BEACH, CA—While conversions from industrial to creative office, mixed use or multifamily tighten the already constrained industrial supply even further, they are allowing for higher and best use as well as higher-paying jobs, CBRE's senior managing director Kurt Strasmann tells GlobeSt.com. The firm's Carol Trapani, Ben Seybold and Sean Ward recently represented seller Doyle Properties LLC, and CBRE's Brad Bierbaum represented buyer American Technologies Inc., an owner/user in this transaction, in the sale of a 144,000-square-foot industrial building in Anaheim, CA, for approximately $16.6 million.

The property, located at 3360 East La Palma Ave., contains approximately 85,000 square feet of warehouse space and 48,900 square feet of office space.  American Technologies plans to rehab the facility, last purchased 30 years ago. The building is located within Anaheim's Canyon Business Center, a prominent local business corridor. The building features major street frontage and is in proximity to the Metrolink train station.

According to Seybold, “We were able to uncover a buyer who needed a corporate headquarters facility and was willing to transition the property from a common manufacturing building to a high-image corporate-headquarters facility.”

Despite the Orange County industrial market's historically low vacancy and declining available supply, overall market fundamentals remain strong with continued high demand for sale and lease requirements, according to CBRE Econometric Advisors. The lack of development has pushed down availability of quality space, therefore increasing average sale prices for industrial product, with a consistent upward trajectory as evidenced by an 8% year-over-year increase at the end of the fourth quarter, setting a new market high.

We spoke with Strasmann about adaptive reuse of industrial and how it is affecting the already-low industrial stock in this market.

GlobeSt.com: How common is adaptive reuse of industrial/office to high-end corporate headquarters building?

Strasmann: This has been going on for some time. Much of the industrial space in South Orange County and the Airport area has transitioned to multifamily, mixed use, office and creative office. As manufacturing in some of these areas has phased out, the demand has been there for these uses. There are certain markets that are more oriented toward creative office than others, so South Orange County is seeing it more. North Orange County is more traditional industrial. But it is happening because in theory these markets evolve to a higher-end use over time. If you can convert a property to a higher-end use to achieve a higher rent, you're motivated to do it. Not all properties are capable of doing this—office use takes more parking, and the site has to lay out, but you'll see a lot of it in areas like Irvine and Costa Mesa.

GlobeSt.com: What is adaptive reuse doing to the existing industrial stock, which is already in short supply?

Strasmann: It's a good thing because our economy is changing. It's moving toward higher-paying, more-skilled jobs, and that use is usually toward a higher-paying professional company.

GlobeSt.com: In short, is this a good thing or a bad thing for the market?

Strasmann: It's good if you own industrial because you're taking product away. The supply is constrained, and this is exacerbating the availability factor for industrial tenants, but it's also bad for our market because industrial tenants have to go somewhere. In the Los Angeles market, West L.A. and Culver City have been doing this for a while. For office, it's very tech based, but we've also lost a lot of product to multifamily. It seems like this will continue because, in today's world, it seems like there is a heavy demand for it.

GlobeSt.com: What else should our readers know about adaptive reuse in tight industrial markets?

Strasmann: Some industrial buildings are being designed to include a larger percentage of office buildout. On large, newer buildings, you might have 3,000 square feet to 5,000 square feet of office. Users want a higher-image building.