Will Inland Empire’s rising industrial prices drive companies out of California? – Press company
As someone famous once said, “These are just opinions, but they’re all mine!”
Today I’m starting the first “random thoughts” column of the year. It’s been a while and emptying your inbox is cleansing, so let’s go!
Forecast for 2022
Our chapter of the Society of Industrial and Office Realtors meets annually to provide a review and outlook on what is happening in the commercial real estate sector. We recently held our first meeting since February 2020.
Yes, the pandemic has affected in-person gatherings, but I digress.
It was great to see the gang. But what must have looked like a good idea when planning the event – al fresco dining – turned into a bunch of trembling realtors huddled around too few heaters. Outdoor event in February? What a good idea. It was a little weather game. The office and industrial markets for Orange County and the Inland Empire were examined. Below are the highlights…
Industrial – Orange County: Robust activity, lease and sale price increases in the 30% range, little to no inventory available. Expect older office buildings to be bought and demolished for new industrial developments – think former OC Register campus, BofA data center in Brea etc. (Both campuses were trapped by Amazon, by the way, one in a sale, the other as a lease.) Expect more of the same in the coming year.
Office – OK: The office market remains mired in uncertainty as large employers fear a return to the office. However, some studies have shown that productivity falls off in a remote workforce. As a result, CEOs are trying to balance security and productivity. Expect hybrid models to prevail—flexible hours and days when an office is fully staffed. Mediation in this uncertainty is a challenge.
Office – Inland Empire: Domestic vacancy rates are lower than Orange County. OC has 13 spots with 100 spots left, while Domestic has 10. We have seen a mass exodus of population from the coastal areas to the inland areas in the last two years. Why pay the exorbitant coastal prices when you don’t have to commute to the office? When all uncertainties have subsided, we expect more corporate headquarters to be located inland. After all, employers follow people. Especially if you have a workforce that is reluctant to commute.
Industry – Inland: The region has seen a boom in e-commerce, third-party logistics, warehousing and shipping of massive online order volumes. Domestic industrial activity is off the charts! Insiders believe we’re headed for $500 per square foot to buy an industrial building and rent at $2 per square foot. As recently as last year, these prices were $125 and $0.65, respectively. Those who cannot afford the higher prices are pushed east, chased out of state or out of business.
Ukraine: Interestingly, there was little to no talk of the Russian invasion. It could be that the flashbacks have been prepared beforehand, or it could be that everyone is waiting. Regardless, we should see rising energy prices, especially for oil and gas. Aside from major spikes at the pump, price increases in petroleum products can be expected to affect all types of commodities from which things are made.
The plastic cover of my iPad, the foam in your pillow, and the soles of your shoes are all made from petroleum products. A further shortage of said raw materials could hit us right in the wallet. Not to mention that we use natural gas to generate electricity. you have the idea
Here you go. More space than you knew existed.
Allen C. Buchanan, SIOR, is a director at Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
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