The biggest surprise this year is how many buildings have been bought up at fairly high prices. We are not out of the doldrums, but there is a scarcity of property for sale. Many buildings that have been sitting around for years are now subject to competitive bidding. Brokers are out looking for “off-market” deals – not for speculative investors, but for Users. While pricing is not at the highest levels, they are in a lofty range and somewhat removed from an otherwise weak leasing market.

Low interest rates are one factor. Excess cash from business operations and a shortage of investment alternatives is another. These are not distressed sales. In fact, the opposite. With rents at $4.80 per year and sale prices at $90.00, what do you make of a 5% cap rate? Will prices appreciate from here? Do these Buyers really care? Users look at supply and demand. Investors focus on financial analysis. More and more, the User market resembles residential real estate. Companies are not buying solely for financial reasons, but for intrinsic reasons related to owning. While this is one sign Los Angeles industrial real estate is normalizing, I still like to see a spread above borrowing costs.