How to Find the Best Industrial Building Today

How to Find the Best Industrial Building Today

How to Find the Best Industrial Building Today

Map of Where Industrial Occupiers Move
Where Industrial Occupiers Move

In less than 18 months, the industrial building market has shifted from low vacancy to abundancy. There are now 215 industrial spaces, greater than 50,000 square feet, available in the Greater Los Angeles Basin. This does not include Orange County, Inland Empire, or San Fernando Valley. Only the areas you see on the map (below). About 20% is sublease space.

The Broker’s role has changed from finding any available space to analyzing the large amount of available inventory. The best value for most tenants is second and third generation spaces. Many of these buildings built since the year 2000 have the same characteristics as brand-new buildings except for ceiling heights, although many of these 2nd Gen buildings still go to 30’.

  • 36’ high buildings came in around 2023
  • 30’ – 32’ Clear was the norm starting in 2000
  • 24’ Clear started as far back as 1975

Older buildings are equally functional as new buildings for less rent, especially if they have a low tax basis. One exception is if the tenant plans to install interior warehouse installations like mezzanines or specialty racking and automation. In these cases, latest generation buildings have an economic advantage because of height.

Some of the calculations we perform to determine functionality include:

  • Location and Distance
  • Docks per 10,000 SF
  • Building to land ratio
  • Cubic Capacity and Cost per Cube
  • Property Taxes/Expenses
  • Ceiling height
  • Sublease

To identify the better buildings, we subject all available properties through a macro analysis. This is the best way to identify differences in functionality and cost when there are a lot of choices.

Here is an example:

Let’s say you are in 100,000 square feet in the South Bay and you want to double in size. Some tenants will move completely to put everything under one roof. Other tenants will look for a satellite building as an interim step. Most South Bay companies will look locally and as far as Santa Fe Springs and Mid Counties. Some will want to go as far as IE West. What will you find?

Streamlit Demo View
Streamlit Demo View

We model the entire market on the Kleincom Industrial Building Analysis we developed on Streamlit. For this report (100,000 SF to 250,000 SF), we identify 55 choices of which 14 are subleases with terms of at least 3 years (some up to 5). For demonstration purposes, we will leave aside, the additional 80 or so buildings in Inland Empire West (Rancho Cucomonga, Ontario, Chino, and Fontana) that meet the size requirement.

Using Ceiling Height with 24’ as the minimum, we establish the following distribution. For most tenants, 30’ to 32’ is the sweet spot.

All Buildings 100K to 250K
All Buildings 100K to 250K

Buildings are dispersed over the entire Los Angeles Region.

Buildings 100k to 250K L.A. Basin
Buildings 100k to 250K L.A. Basin

The second factor to sort the choices is the Loading Dock Ratio measuring docks per 10,000 square feet to determine loading efficiency. Any dock ratio greater than 1.5 doors/10,000 square feet is considered highly efficient and closer to 2 docks/10,000 SF is superior.

Docks Per 10k SF
Docks Per 10k SF

Looking at the top results, it’s not always the newest buildings that are the best choices. You can lease 2nd or 3rd generation buildings for $1.75 to $1.95 per foot (all-in). About half of the buildings are 30’ or greater.

Results Table
Market Area Size Rate Month Clr Year Cubic Ft Dock Ratio B:L
Gardena/ Compton 300000 1.6 $480,000 26 1987 7800000 3.33 40%
Carson/Compton 300000 1.53 $459,000 25 1970 7500000 1.84 52%
Carson/Compton 285000 2.2 $627,000 32 2006 9120000 2.24 41%
Carson/Compton 250000 1.51 $377,500 25 1972 6250000 2.17 60%
MidCounties 250000 1.8 $450,000 32 2002 8000000 2.05 59%
Carson/Compton 150000 2.1 $315,000 36 2024 5400000 2.84 60%
Commerce/Vernon 150000 2.6 $390,000 36 2024 5400000 2.11 55%

For some tenant’s subleases may be the right answer because the terms are relatively short, and the financial commitment will be less. Ecommerce tenants and larger Amazon/Temu Sellers are drawn to subleases. The top subleases have exceptional loading and low property taxes. In most cases, landlords will renew when the lease expires.

Best Subleases
City SF Yr Blt HGT DH Dock Ratio Years Remaining
Carson 300000 1973 22 40 1.33 3.69
Industry 225000 1996 30 25 1.11 5.58
Torrance 200000 2000 30 30 1.50 2.69
Torrance 135000 2001 30 25 1.85 3.44
Commerce 125000 1957 22 55 4.40 5.28
Santa Fe Springs 120000 2003 30 30 2.50 3.78
La Mirada 100000 1997 30 20 2.00 2.44
Compton 100000 1981 24 15 1.50 3.02

Experienced tenants will use site plans to decide. There is a preference for a more rectangular building than a square so you can load more trucks simultaneously and divided to sub-customers if necessary. Here’s an example of two buildings of approximately the same size and asking rent. Most tenants would prefer the first building because loading exceeds 2 docks per 10,000 square feet, it has additional trailer parking, and the warehouse can be easily divided into sections while maintaining optimum functionality.

The second site plan is reasonably functional but only has 1 dock per 10,000 square feet, can only be divided in half and is less functional than the first example. For the same cost, most tenants will choose the first building.

With the high cost of land and construction costs, developers need to maximize building coverage to compete and make a profit. In other words, developers are often forced to build the largest possible building on the site while doing their best to keep the building functional. As you can see, some buildings are more functional than others.

Every tenant has different priorities, but most revolve around the same criteria of location and function. At Klein Commercial, we have 40 years of corporate real estate experience locating the best buildings for our clients. Our latest tool, the Kleincom Industrial Building Analysis, will help you make the best choice amongst all the available space on the market today.

How Is Industrial Real Estate Today?

How Is Industrial Real Estate Today?

Map showing electrical symbol for buildings with increasing size based on building
Power Map of Buildings In LA County

Industrial real estate is a diverse business that includes Investment funds, developers, private/family owners, corporations, occupiers, and a mix of product types and industries. Industrial buildings are in every community and are the source of employment, production, distribution, and wealth for many. The nation’s economic health rides on the success of industrial real estate.

There are several factors that are driving deals today. Broadly, these include Interest Rate Policy, US Industrial Strategy, and Local Municipal Governance. Everyone is affected differently. For example, higher interest rates are never good for real estate, though they affect sales more than leases; sale transactions are interest rate sensitive while leasing is supply and demand based. As an experienced broker, we use detailed knowledge, market analytics, and long-standing relationships to help you in making the best decision.
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Three Innovations for 2023

Three Innovations for 2023

ChatGPT:

I could not start the year without acknowledging the tools that are currently available at Open AI. I’ve recently created a new FAQ page with the use of ChatGPT and Dall-E 2. It must have been under the wire before Google Search created new defenses against text bots. I received one solid lead from a company looking for 30,000 square feet because of the AI-generated explanation of my services.
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Leasing Industrial Property in Los Angeles County Under the New Green Zone Ordinance

Leasing Industrial Property in Los Angeles County Under the New Green Zone Ordinance

Leasing Industrial Property in Los Angeles County Under the New Green Zone Ordinance

Green Zones

Green Zones are an entirely different way to look at zoning. It is an outgrowth of the Environmental Justice Movement that had its local origins addressing diesel exhaust at the Port Complex in San Pedro Bay. Properties are analyzed and graded based on their contribution to health disparities using the Environmental Justice Screening Method (EJSM). The EJSM is a new tool and strategy that is designed to correct unhealthy conditions by establishing new mitigation mechanisms. The County will use the EJSM for ongoing monitoring and annual reporting to the parcel level.

Depending on the EJSM score, Regional Planning offers four (4) different routes to approval. The simplest is Site Plan Review (SPR) and it is approved administratively in what we use to call, “over the counter”. The other three routes are discretionary and require formal application and Public Hearing at different levels of planning authority. Generally, the greater the health impact, the longer the approvals.
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Stricter Underwriting is Here – Industrial Policy is a New Catalyst

Stricter Underwriting is Here – Industrial Policy is a New Catalyst

For the past several years, and particularly during the COVID-19 Period, conventional underwriting took a back seat to momentum. No one’s pro-forma predicted the incredible rent growth over this period. Low interest rates and shortage of product drove prices higher. Industrial rents doubled in two years. Underwriting was limited to the simple and liberal measurement of Net Rent/Purchase Price = Rate of Return. Any return higher than treasury rates signaled a buy. It was the period of “Search for Yield”.
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Blockchain: Should You Post Your Industrial Property?

Blockchain: Should You Post Your Industrial Property?

Putting a property on the blockchain allows people to transact if they have the link. When we post a property, the blockchain generates a cryptographic key which allows the possessor access to the property. We give that key, in the form of a link or a QR code. There are associated rights with the key that are compared to an NFT or a token, but our purpose for using the blockchain is its ordering system. The key is only sent to Selected Trusted Parties that are registered or known.  Nothing is posted online or in the Multiple Listing Services because blockchain is used for privacy.
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Blockchain Demo

Blockchain Demo


Transcript

Welcome to Gardena, CA!

The center of industrial real estate for Los Angeles.

I’m Jim Klein and today I will show you, how to use the blockchain to send and receive files, decentrally among trusted parties.

Let’s go inside.

Here’s how it works. We input the address of the property on the top line. In this case, it’s 19475 Gramercy Pl, Torrance, CA. It’s a 47,000 ft manufacturing, industrial storage building. Contact ID is where we can put the user’s email or a customer number that we generate. We include the file and we press go.

After pressing go the program creates a QR code and a link that I can send to the customer. Only parties who have the link or code can open the file. It records on the blockchain to serve as proof.

With the link you can either click on it or put it in your browser, and the file is transmitted to the party you want to send.

My first use case is offmarket industrial real estate. Meta tags can be used to search the blockchain by keyword.

I’m asking for your help to expand the project and make more deals together. Thank you to the innovation committee and you watching.

SIORS: Finding More Industrial Deals By Blockchain

SIORS: Finding More Industrial Deals By Blockchain


We’ll be meeting in Phoenix for SIOR next week. They are bi-annual conferences, and this will be my 60th in attendance. There are three main reasons I attend. I learn from the best brokers and owner/developers in the industry. There are deals to make and I will see longtime friends. The 4th reason this year is to show how blockchain finds more industrial building deals.

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Industrial Space Market Premium

Industrial Space Market Premium

Industrial building rents are surging. Largest and fastest increases I’ve ever seen. We are almost at the point where rents and sale prices have doubled since the start of Covid. If rents were quoted daily, there would be the same large spikes you see in oil or wheat markets. Because industrial building market data is opaque, only those buyers (and brokers) most in tune with the industrial market read it accurately. Tenants are paying premium prices to obtain space under constrained conditions.
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