Friday, December 7, 2018

3 BIGGEST Issues Confronting Occupants of Commercial Real Estate

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As a commercial real estate professional - my travels take me to many cool businesses. You see, close to half of my practice is consumed advising owners of closely held manufacturing and distribution operations on their commercial real estate requirements. A typical week will include three to six meetings with entrepreneurs. Resulting from my outreach is a “pulse” of sorts on the issues facing these companies - the occupants of commercial real estate. 

So, what are these business owners sharing with me? That dear reader, is the subject of today’s column.

Lack of quality employees. Unemployment in Orange County and the Inland Empire is the lowest in history. Doubt what I say? Try this simple exercise. Next time you’re out to visit your neighborhood - you decide - observe the number of “help wanted” signs. They are everywhere! Add a bit of skill or complexity to the position - a computer numeric machine operator, welder, diesel mechanic or heavy equipment driver - good luck. “Poaching” trained workers from competitors is widely practiced these days. What is the solution? In my opinion, a more focused effort on the part of our community college system, trade schools, and vocational training in our high schools to prepare young folks for the skills necessary and the jobs available.

Increasing costs. Minimum wage, rents, tariffs - all add to the up-tick in operating costs. Let’s take your typical distribution company as an example. Defined is a business that stores and ships things - but doesn’t necessarily make the items they ship. Contained in their operating expenses are three main categories - labor, space, and the price of the products that enter and leave the warehouse. See any issues there? Yep. A distributor’s three main cost centers are increasing wildly! Here is a simple example. If rents bump up by 30% - that company must figure a way to absorb the higher cost. He’s three options - raise prices, lease fewer square feet, or take the hit in his bottom line.

Legacy. Countless small business owners with whom I deal are on the back nine of their careers. Many are thinking about the 19th hole. The problem is - too few of them have an exit planned - a family member who will assume the reigns, a sale of the business to a competitor, or what will be done with their commercial real estate once the company is sold. Once such operator finds himself with a building ownership which doesn’t mirror the company ownership. By the way, he is the common member of both. Now he faces differing motivations when it comes to the real estate direction - sell, raise rents, etc.

What issues is your business facing? I’d love to hear from you.

Allen C. Buchanan, SIOR is a principal with Lee & Associates Commercial Real Estate Services. He can be reached at 714.564.7104 or abuchanan@lee-associates.com  his website is allencbuchanan.com