In Industrial Leasing, Go Big

A tip for tenants looking for industrial space in this very tight market: go big. That is, consider a larger space that can support room for business growth, according to Kyle Degener, an associate VP at Colliers International. With a 1% vacancy rate in some submarkets and a 2% vacancy rate everywhere else in L.A., subleasing is an option if the space is larger than required.

“When a larger property becomes available, but a company doesn't know yet if it is going to work for them or they know that it isn't going to work for them, subleasing is an option,” Degener tells GlobeSt.com. “In that case, if they have a long lease term, they are the master tenant and they are able to go and sublease that additional square footage. There is a comfort level in leasing a property that might not be the perfect, cookie-cutter property, but if they need to sublease it, the demand is still strong enough where you are able to find someone to backfill your space. There is obviously risk, but there is a comfort level in the high demand for industrial.”

Degener recently negotiated a 158,000-square-foot industrial lease on behalf his client in the tight South Bay market. The tenant was originally looking for a 120,000-square-foot facility, but Degener thought that the larger space may be a better fit—and it was. “You have to act fast, have an open mind and be creative about the size of space that you need,” he says. “Our client wanted a smaller space, but they realized that a larger space could accommodate business growth. It actually turned out that they signed a new client as we were negotiating the lease deal that required more space. So, it worked out well.”

Of course, there is a risk to subleasing the space, and the tenant should take that into consideration when leasing a larger space. At present, the subleasing market for industrial space is just as tight as the direct lease market, which says a lot about demand across the board. “It is one in the same as far as the vacancy rate,” says Degener. “We are at 1% vacancy, and that includes direct leases and subleases. Whether it is a direct lease or a sublease, tenants are going after properties that work for them. Obviously, every property is different and every site has benefits.”

With a shortage of supply, leasing a larger space could be a solution for companies desperately looking for a facility. Even better, if the company is on a growth trajectory, it could save it from needing to scavenge for a larger space down the road—when space is even tighter and prices are higher.

A tip for tenants looking for industrial space in this very tight market: go big. That is, consider a larger space that can support room for business growth, according to Kyle Degener, an associate VP at Colliers International. With a 1% vacancy rate in some submarkets and a 2% vacancy rate everywhere else in L.A., subleasing is an option if the space is larger than required.

“When a larger property becomes available, but a company doesn't know yet if it is going to work for them or they know that it isn't going to work for them, subleasing is an option,” Degener tells GlobeSt.com. “In that case, if they have a long lease term, they are the master tenant and they are able to go and sublease that additional square footage. There is a comfort level in leasing a property that might not be the perfect, cookie-cutter property, but if they need to sublease it, the demand is still strong enough where you are able to find someone to backfill your space. There is obviously risk, but there is a comfort level in the high demand for industrial.”

Degener recently negotiated a 158,000-square-foot industrial lease on behalf his client in the tight South Bay market. The tenant was originally looking for a 120,000-square-foot facility, but Degener thought that the larger space may be a better fit—and it was. “You have to act fast, have an open mind and be creative about the size of space that you need,” he says. “Our client wanted a smaller space, but they realized that a larger space could accommodate business growth. It actually turned out that they signed a new client as we were negotiating the lease deal that required more space. So, it worked out well.”

Of course, there is a risk to subleasing the space, and the tenant should take that into consideration when leasing a larger space. At present, the subleasing market for industrial space is just as tight as the direct lease market, which says a lot about demand across the board. “It is one in the same as far as the vacancy rate,” says Degener. “We are at 1% vacancy, and that includes direct leases and subleases. Whether it is a direct lease or a sublease, tenants are going after properties that work for them. Obviously, every property is different and every site has benefits.”

With a shortage of supply, leasing a larger space could be a solution for companies desperately looking for a facility. Even better, if the company is on a growth trajectory, it could save it from needing to scavenge for a larger space down the road—when space is even tighter and prices are higher.