SIOR Meanderings

From SIOR.com - “For more than 80 years, the Society of Industrial and Office Realtors® (SIOR) has been the leading global professional office and industrial real estate association, and continues to move the industry and our members' business forward as we drive the future of Commercial Real Estate. With 3,900 members in over 50 countries, SIOR represents today's most knowledgeable, experienced, ethical, and successful commercial real estate brokerage specialists.” 
 
I’ve been a proud member of this organization since 2018. The semi-annual conferences are epic, the destinations are glorious, the education is unparalleled, and the networking unsurpassed! We returned from this spring’s gathering last week and I’ve now had time to decompress and reflect on what I learned. This column will share some insights. 
 
Industrial breakout. I spent time with industrial real estate brokers from around the United States and the world. Monday afternoon’s conversation was quite eye-opening. Discussed was occupant’s use of Automated Storage and Retrieval Systems - ASRS. These high-tech inventory management arrangements cause a modern logistics provider to be more efficient, timely, and they require fewer employees. Many in the cold storage space are utilizing an ASRS to more strategically manage their inventories. In one instance, an occupant called AmeriCold constructs their new buildings around such a system and in many cases, they stretch 150 feet in height. To put this in context, that is approximately twelve stories high, and roughly four times the height of the modern concrete behemoths we see being erected in the Inland Empire.
 
Data centers, which power artificial intelligence are springing up around the United States, as well as chip manufacturing fabs as they referred to. The underlying challenge of both industrial real estate applications is the acute need for power.developers of these buildings seek power first and communities that can provide the power as opposed to the cost of land under which the building is constructed. A new concept called mini grids are appearing around the United States. These systems are encapsulated power serving a specific site with the juice generated by solar, wind, or other forms of renewable energy.
 
Industrial roundtable.  We heard from agents representing Mexico, Tampa, Florida, Atlanta, Georgia, Charlotte, North Carolina, Nashville, Tennessee, Dallas, Texas, Houston, Texas, Rotterdam, the Netherlands, Toronto, Canada, Laredo, Texas, Columbus, Ohio, Indianapolis, Indiana, and Los Angeles, California. Curiously absent from this round up was anyone from the middle part of the west such as Denver, Salt Lake City, and Phoenix. Certain themes were repeated. Much like Southern California - large scale inventory between 100,000 and 500,000 ft.² has been dramatically over built and therefore more supply than demand exists. In buildings larger than 500,000 ft.², a shortage exists. And there is still quite a demand for large boxes. The most robust size range nationally are buildings under 50,000 ft.². Most mentioned power and the lack of a sustainable source to be an existing in future challenge. All of the markets have experienced occupant demand waning as a result of inflation, higher borrowing rates, and the de-inventory after the Covid pandemic. The representative from Los Angeles, California opined that we are at the bottom in terms of rental rates as rents have decreased 30 to 40%. He echoed that 800,000 ft.² and larger is a hot size range as well as buildings below 50,000 ft.². The Los Angeles ports are doing a record amount of business. Third Party Logistics operators - 3PLs - are renegotiating leases that they originated in 2020, 2021, and 2022. Finally some local insurance carriers are requiring electrical panels be replaced in order to lessen the possibility of fire.
 
It’s very interesting to hear about the successes and struggles of other SIOR brokers around the United States. I’ll look forward, with great interest, to our fall conference which will be a home game as it will be based in Hollywood California. 
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.