Lack of Demand in Industrial Real Estate

Good day, dear readers! Today I feel a bit professorial. Therefore, I’ll discuss a phenomenon we’re witnessing in the industrial real estate market in Southern California—the lack of demand.
 
What is demand, you may ask? In this context, demand stems from a need created by external factors. Think for a moment about your own household. If you suddenly realize you’re out of coffee, you have a need created by an external factor—someone forgot to put coffee on the shopping list. Consequently, you rush to your corner Starbucks or neighborhood Albertson’s to get your caffeine fix.
 
Demand in industrial real estate works in much the same way. It arises from changes in business activity, external economic factors, or shifts in the marketplace. In the halcyon days of 2020 and 2021, as many of us were quarantined in our home offices, a surge in online shopping occurred. Retail giants like Amazon, Walmart, Costco, and Target ramped up their inventories to avoid stock shortages, leading to a massive boom in demand for warehouse space.

Two things happened:

1.       On-hand inventories swelled to unprecedented levels.
2.       This massive uptick in inventories led to historically low vacancy rates in industrial spaces, especially in logistics hubs. As a result, rents and sale prices for warehouse space soared, and smaller retailers began relying heavily on third-party logistics providers (3PLs) to manage distribution. These 3PLs also scrambled to lease more space to meet the growing needs of their customers.

But by the summer of 2022, everything changed. The business climate cooled, interest rates rose, and the once-voracious demand for industrial space slowed down. No longer could the industry count on Amazon absorbing millions of square feet of space to fuel growth.
 
However, today’s lack of demand feels different. It’s more systemic—driven not only by market corrections but by a deeper uncertainty. When businesses are uncertain about the future, they hesitate. They are less likely to acquire competitors, hire new employees, venture into new business deals, or lease additional space. And this hesitation is what we’re witnessing now.
 
What’s Causing the Uncertainty?

I believe several factors are at play that contribute to the lack of demand in industrial real estate:
1.       Upcoming Election: Political transitions and elections often lead to a wait-and-see approach from businesses. They want to know which policies will be implemented before making large commitments.
2.       Global Tensions: From trade wars to geopolitical conflicts, uncertainty on the world stage makes companies think twice before investing in new space or expanding operations abroad.
3.       Federal Reserve Moves: The Federal Reserve’s interest rate hike shave made borrowing more expensive, which in turn raises the cost of financing real estate transactions. This has caused both tenants and investors to hit the pause button on deals that previously made sense financially.
4.       Natural Disasters: The growing frequency of natural disasters—wildfires, hurricanes, floods—has added a layer of risk to real estate decisions. Companies are increasingly aware of the potential impact of these events on their operations and are cautious about committing to long-term leases or purchases in areas vulnerable to climate change.
5.       Record-High Rents and Sales Prices: After years of rapid growth, industrial real estate prices have hit record highs, making it difficult for tenants to justify paying such premiums, especially in uncertain economic times.
6.       Higher Interest Rates: With interest rates on the rise, the cost of borrowing for expansions, acquisitions, or even renewing current leases has significantly increased. This has forced many companies to reconsider their growth plans or downsize their space requirements.
7.        
What’s Next for Industrial Real Estate?

While this slowdown in demand is significant, it doesn’t spell doom for the industrial real estate market. Instead, it signals a recalibration—a moment to step back, assess, and adjust strategies for both owners and tenants.
For tenants, this cooling market could present opportunities to negotiate more favorable lease terms, secure rent reductions, or lock in concessions like tenant improvements or free rent periods. Meanwhile, for landlords, this is a time to consider flexibility—offering shorter lease terms, more aggressive incentives, or even speculative development that aligns with future market shifts.
 
As we move forward, it will be crucial to keep an eye on the macroeconomic factors—interest rates, geopolitical developments, and economic policy decisions—that continue to shape demand. The industrial real estate market has proven its resilience over the years, and while today we may be facing a lull in demand, tomorrow’s landscape may very well be different.
 
Conclusion
So, where does that leave us? While the current market conditions are challenging, this period of lower demand is not necessarily a long-term problem. Instead, it’s an opportunity—for businesses to secure better deals and for property owners to reevaluate and reposition their assets. As we all navigate through this uncertainty, one thing remains clear: industrial real estate will continue to adapt, evolve, and play a critical role in the broader economy.
 
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.

Executing a Purchase Escrow in Commercial Real Estate

As commercial real estate professionals, we facilitate both lease and sale transactions for our clients. While the steps leading to both types of deals are similar, the execution diverges significantly once terms are agreed upon. In leasing, once the document is signed, our role diminishes—aside from helping with city approvals or coordinating tenant improvements. However, in a sale, our involvement intensifies as we guide the process through escrow to ensure the transfer of title and ownership. 
 
Today’s column walks you through the essential steps in managing a smooth purchase escrow.
 
Deposit wired to escrow
One of the first actions after signing the purchase agreement is ensuring the buyer’s deposit is wired to the escrow holder. This demonstrates the buyer’s commitment and allows the formal escrow process to begin. Failing to make this deposit in a timely manner can result in delays or even jeopardize the entire transaction.
 
Sign the property information sheet
The property information sheet is crucial for ensuring the buyer has all necessary details about the property, such as zoning, utilities, and any existing conditions. It also serves as a checklist to confirm that both parties agree on the property’s specifics, preventing any last-minute surprises.
 
Engage consultants for due diligence
The property condition assessment (PCA) and Phase I environmental report are key to identifying any potential issues with the property. These assessments provide a comprehensive look at the building's structural integrity and environmental safety, ensuring that the buyer isn't inheriting hidden liabilities. Hiring reliable consultants early in the process avoids delays.
 
Get your lender moving
Lenders often require third-party reports, particularly appraisals, which can be time-consuming. Ensuring your lender begins these processes early can prevent bottlenecks later in the escrow period. Timing is critical here, as any delay in the appraisal or other required reports can push the closing date back.
 
Organize transaction documents
Creating a Dropbox or another shared platform for housing all transaction documents keeps everyone—buyer, seller, attorneys, lenders—on the same page. Having easy access to all documents allows for smoother communication and avoids the risk of lost paperwork.
 
Calendar key dates
Every purchase and sale agreement has specific timelines, from the deposit deadline to the closing date. It’s essential to calendar these dates to stay ahead of any upcoming deadlines. Missing a critical date could cause the deal to fall apart or, at the very least, complicate negotiations.
 
Create a lease between the LLC and the operating company
In cases where the buyer is an owner-occupant purchasing the property through an LLC, creating a lease agreement between the LLC and the operating company is crucial. This ensures the property remains properly structured from a legal and financial standpoint. Additionally, this arrangement can offer tax advantages and protect the buyer's personal assets.
 
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.

What Can the Desert Southwest Teach Us About Commercial Real Estate?

As our travels took us to Phoenix, Tucson, and Santa Fe over the past week - I had two colliding thoughts. The beauty of the desert southwest was consuming and our world at this time 16 years ago was consuming as well! Our commercial real estate market was side swiped by the financial crash of 2008! I wondered if the two were somehow related and if lessons could be leaned. 
 
So. Here goes. 
 
If you’ve ever spent time in the desert Southwest—Arizona, Nevada, New Mexico—you know that survival there is all about adapting to extremes. In the blistering summer, temperatures soar, and water becomes a precious resource. Yet life persists. Cacti, creosote bushes, and desert wildlife don’t just endure—they thrive because they’ve evolved to do so. They’ve learned to make the most out of the environment they’re in, maximizing every drop of water and adjusting to whatever comes their way.
 
Commercial real estate, like desert life, is a game of adaptation. Whether you’re a seasoned investor, an owner-occupant, or an industrial broker positioned in today’s dynamic market, the lessons from the desert are right there in front of us—if we’re willing to see them.
 
1. Resilience in the Face of Scarcity
The desert’s number one challenge is scarcity, and in real estate, it’s no different. In boom times, it’s easy to make deals—capital is abundant, credit is flowing, and everyone’s eager to move fast. But what happens when those resources dry up? Think back to the 2008 financial collapse. One moment, liquidity was everywhere; the next, it vanished. Deals died overnight, and only the most prepared, resilient players could weather the storm.
 
A desert cactus stores water for months, waiting for the right conditions to use it. As a commercial real estate professional, this is a reminder to build reserves—whether that’s in capital, market knowledge, or relationships. Like the cactus, don’t overextend yourself in good times. Prepare for downturns, and when they inevitably come, you’ll not just survive—you’ll thrive.
 
2. Know Your Environment
Brokering commercial real estate isn’t just about playing the market—it’s about knowing the environment. The desert has very specific climates, microclimates even, and if you don't understand those differences, you’ll fail. Phoenix, Las Vegas, and Albuquerque might all share the desert’s common traits, but each has its unique challenges and opportunities. What works in Phoenix won’t necessarily work in Las Vegas.
 
Likewise, industrial real estate in Southern California has its nuances. I often remind clients that even though SoCal is a booming market, the micro-markets of Long Beach, Inland Empire, and north Orange County, where I worked during the 2008 financial crisis, each require a tailored approach. Just like a desert traveler checks the conditions before setting out, commercial real estate practitioners must assess the specific terrain they’re in. Understanding the local economic, political, and market conditions can mean the difference between a deal’s success or failure.
 
3. Timing is Everything
The desert teaches patience. Rain doesn’t come when you expect it; it comes when the environment is ready for it. In commercial real estate, timing is just as critical. Sometimes deals fall apart not because of lack of interest, but because the timing isn’t right—either for the buyer, the seller, or the market itself.
 
I’ve seen this time and time again in my own experience. Back in 2008, during the height of the financial collapse, a promising buyer for a large manufacturing site suddenly lost financing when their Small Business Administration loan commitment disappeared. The market shifted almost overnight, and we had to wait until the right time to close a deal at a significantly reduced price. Understanding when to act—and when to wait—is a skill that separates the seasoned from the amateurs.
 
4. Innovation is Key
Despite the desert’s harsh conditions, innovation thrives there. Solar farms, sustainable architecture, and water conservation technologies are just some of the breakthroughs we’ve seen over the years. Similarly, commercial real estate is ripe for innovation. The industrial sector is adapting to a post-pandemic world by embracing e-commerce, automation, and green technologies.
 
Whether you're retrofitting older properties or designing new industrial spaces, the industry’s future depends on staying ahead of the curve. Just like innovators in the desert seek new ways to make life easier and more efficient, those of us in commercial real estate need to be thinking not just about the present, but about how to create spaces that will serve the future.
 
The Takeaway
The desert may seem like an unforgiving place, but it’s also full of lessons. Adaptability, patience, and resourcefulness are key to surviving—and thriving—in both the desert and in commercial real estate. As the market shifts, those who prepare, understand their environment, and are willing to innovate will be the ones who succeed. So, the next time you're out in the desert Southwest, take a moment to reflect. The landscape might be more like our industry than you’d think.
 
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.

The Dance of Commercial Real Estate: A Complex Waltz

Commercial real estate deals often appear as a bewildering tango of factors. Motivation, fear, greed, market conditions, financing, credit-worthiness, uncertainty, and economic outlooks all swirl together in a dizzying display. But strip away the complexities, and you're left with two essential players on the dance floor: an occupant and an owner.
An occupant might be a buyer looking to purchase or a tenant seeking to lease. On the other side, an owner could be a landlord with space to rent or a seller ready to part ways with their property. When these two parties, properly motivated, find each other, the real dance begins.
As a commercial real estate practitioner, my role is to choreograph this intricate performance. To do so effectively, I rely on five key elements:

1. Ownership: Knowing who holds the deed is the first step in any potential transaction.
2. Availability: What's on the market? What spaces are up for grabs?
3. Recent leases: Understanding the current rental landscape informs both occupants and owners.
4. Recent sales: These transactions set the tempo for property values.
5. Appeal: Identifying which occupants might be drawn to a particular building is crucial for a successful match.

But let's circle back to those factors I mentioned earlier. How do they fit into this dance?
Motivation is the music that gets everyone moving. Without it, the dance floor remains empty. Fear and greed? They're the rhythm section, driving the beat faster or slower, influencing how quickly deals come together or fall apart.

Market conditions and economic outlooks set the overall mood of the ballroom. Are we in a upbeat swing or a cautious waltz?

Financing and credit-worthiness act as the dancing shoes. Without them, even the most eager dancers might sit out a few numbers.

Uncertainty? That's the fog machine, adding an element of mystery and sometimes confusion to the proceedings.

When all these elements align - when the music is right, the rhythm is pulsing, the mood is positive, and everyone's got their dancing shoes on - that's when the magic happens. A motivated occupant and an equally motivated owner find each other on the dance floor, and a deal is struck.
As a commercial real estate professional, my job is to be part DJ, part dance instructor, and part matchmaker. I need to read the room, understand the music, and bring the right partners together at the right time.

It's a complex dance, indeed. But when it all comes together? There's nothing quite like it in the business world.
 
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.

Marshall Field’s Contribution To Retail

Our travels took us to the Windy City over the weekend to celebrate a milestone event in our marriage. To better understand one of America’s great cities and its origin - we took a walking city tour. I love the architecture of the bygone days and as a commercial real estate professional, the story behind how cities develop is fascinating to me. 
 
As we approached the corner of State and Washington, an immense fourteen story structure loomed. We found ourselves learning about a Chicago icon—Marshall Field. As we strolled through this bustling city, weaving through shoppers and gazing up at storefronts, I was reminded of just how much one man, more than a century ago, shaped the way we experience retail today. 
 
Things such as individual item pricing, customer service, purchase returns and the experiential approach stores such as BassPro and REI have adopted were all Field hallmarks. 
 
Field’s legacy is more than a department store; it’s a blueprint for modern commerce, and his influence is still alive in almost every retail experience we have today.
 
Marshall Field more than a retailer—he was a visionary. His store on State Street wasn’t just a place to buy things; it was a place to be. He understood, long before anyone else, that shopping should be more than a transaction—it should be an experience. Walking into his store was like stepping into another world, where beautiful displays and carefully curated products drew customers in, not just to buy, but to linger and enjoy. 
 
Field realized that the environment mattered as much as the merchandise. It’s no wonder department stores became destinations unto themselves, and that tradition endures in some of our most iconic retailers today.
 
But Field’s real genius was his deep respect for the customer. He’s the one who coined the phrase "The customer is always right," and he truly lived by it. He made it easy for people to return items if they weren’t satisfied, a policy that, at the time, was revolutionary. Field believed that if you treated people well, they’d keep coming back—and they did. 
 
His dedication to customer service laid the groundwork for the personalized, customer-first approach that we all expect from businesses now.
 
Field also understood something else that was ahead of its time: the value of offering a unique product mix. He built relationships with suppliers all over the world to bring exclusive, high-quality items to his stores. Instead of trying to be everything to everyone, he focused on offering carefully selected goods that reflected the taste and aspirations of his clientele. It’s a lesson that many retailers would do well to remember—especially in today’s landscape, where a well-curated selection often speaks louder than endless options.
 
It was more than the products or the atmosphere, though. Field also believed in running his business with integrity and treating his employees with respect. At a time when labor conditions were often harsh, he made sure his employees were paid fairly and worked in humane environments. This not only created a loyal workforce but also reinforced the values of his brand—integrity, quality, and care. It’s a reminder that the culture behind the scenes often shapes the experience in front of the store.
 
As I reflect on my own experiences—whether it’s walking through grand department stores in major cities or the charm of smaller, curated shops—I realize how much of what we take for granted in retail today can be traced back to Marshall Field’s vision. His legacy is a reminder that great businesses aren’t just built on products—they’re built on people, values, and an unwavering commitment to creating something special. 
 
So next time you’re enjoying a beautifully crafted window display or being greeted with a smile when you walk into a store, take a moment to think about Marshall Field, the man who helped make it all possible.
 
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.

Random Thoughts on the State of Commercial Real Estate

Occasionally, it’s good to clear your inbox. Mine is particularly full as I’ve been out of state since mid-August. What follows are some random thoughts that are swirling around my consciousness. As someone famous once opined—they’re only opinions, but they’re all mine. So, here goes.

Traveling through the Northeast was inspirational! Our destinations included several cities in six states: Providence, Rhode Island; Boston, Massachusetts; Portsmouth, New Hampshire; Bangor, Maine; New York City; and New Haven, Connecticut.

The contrast between these historic cities and the rapidly evolving commercial real estate landscape back home is striking. In many ways, the old-world charm of the Northeast reminds me of the long-term value that well-located, enduring properties can offer. While shiny new developments and the latest logistics hubs dominate the conversation, there’s something to be said for the stability and reliability of properties that have stood the test of time.

Back in Southern California, the commercial real estate scene continues to shift. One of the more surprising developments this summer has been the unexpected uptick in leasing activity, particularly in the logistics sector. Chinese companies, spurred by the Trump-era tariffs and ongoing global supply chain disruptions, are snapping up warehouse space to better manage their inventories. It’s a trend that caught many off guard, especially considering we’re typically in the slower, vacation-heavy months of the year.

But this isn’t just a story of international companies adapting to geopolitical realities. It’s also a reminder that in commercial real estate, timing and market dynamics are everything. When supply exceeds demand, as we’ve been seeing with the glut of Class A logistics inventory above 100,000 square feet, price reductions inevitably follow. Yet, just as prices begin to soften, we’re witnessing renewed interest and activity. It’s almost as if the market itself is a living, breathing entity, responding to every nudge and shift in the global landscape.

Reflecting on these developments, I’m reminded that the commercial real estate market, much like the cities I visited, is a blend of the old and the new, the predictable and the unexpected. While it’s easy to get caught up in the latest trends or geopolitical shifts, there’s value in stepping back and considering the broader picture.

Perhaps that’s why I find travel so enriching. It offers a fresh perspective, a reminder that while the landscape may change, certain fundamentals—like the importance of location, timing, and adaptability—remain constant. So, as I clear my inbox and return to the day-to-day, I’ll keep these random thoughts in mind. They may be just that—random—but in the ever-evolving world of commercial real estate, they offer a lens through which to view the bigger picture.

And with that, it’s back to business as usual. Until the next trip, or the next unexpected shift in the market, these thoughts will keep swirling, reminding me that in real estate, as in life, it’s all about how you navigate the changes.
 
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.

Zero Sum Game in Commercial Real Estate: The Myth of Winning at All Costs

I’ve been reflecting lately on the term "zero sum game." It’s one of those phrases that gets thrown around often in business, particularly in negotiations. The idea is simple: in a zero-sum game, one party’s gain is another’s loss. If I win, you lose. If you win, I lose. The sum of our outcomes is zero. In this view, everything is a battle where only one can come out ahead.

 
This concept seems especially prevalent in commercial real estate transactions when the market is hedged in favor or a buyer or seller. Think about it—there’s a property on the table, and both buyer and seller have their own goals, often seemingly at odds. The seller wants the highest possible price; the buyer, the lowest. It’s easy to fall into the mindset that for one side to succeed, the other must suffer.
 
We’re often led to believe that every negotiation is a zero-sum game where our only option is to win, no matter the cost to the other party.
 
But is that really the case? Can a deal only close if someone loses?
I’ve found that in reality, this approach is not only limiting but often counterproductive.
 
Commercial real estate transactions are rarely a simple equation of plus one, minus one. The complexity of the deals, the relationships at play, and the long-term impacts on both parties are far too intricate to be boiled down to mere numbers on a scoreboard.
 
In my experience, the most successful transactions aren’t the ones where someone walks away feeling like they’ve “won” at the expense of the other. Instead, they’re the deals where both parties come away feeling satisfied, where both sides can say they’ve achieved something valuable. This is what we mean by a win-win situation.
 
A true win-win transaction takes into account the broader picture. It’s about finding common ground, identifying shared interests, and creating value for both parties. It might mean being flexible, thinking creatively, or looking beyond the immediate financials to consider the long-term relationships and potential future opportunities.
 
For example, a seller might accept a slightly lower offer if it means a quicker close or if the buyer is a local business that will positively impact the community—something that, in the long run, could enhance the value of other nearby properties the seller owns. A buyer might agree to pay a bit more if it means securing a property that perfectly suits their needs, saving them future relocation costs or renovations.
 
These are the kinds of
compromises that lead to deals where both sides feel they’ve won.
 
I’ve often seen negotiations where both parties dig in, each determined to get the upper hand. They see every concession as a loss, every gain as a victory. But this mindset overlooks the bigger picture. It ignores the fact that a deal where one party is left feeling resentful or cheated is less likely to hold up in the long run. Relationships sour, deals fall apart, or the animosity lingers, affecting future interactions.
 
On the other hand, when both parties feel like they’ve won something, the outcome is more sustainable. The buyer and seller leave the table not as adversaries, but as partners in a transaction that benefits them both. This isn’t just a feel-good sentiment—it’s good business.
 
So, where does the zero-sum game fit in commercial real estate? It doesn’t. Not if you’re in it for the long haul. Not if you’re looking to build lasting relationships, create value, and grow your business in a way that benefits everyone involved.
 
The next time you’re sitting at the negotiation table, try to move away from the mindset of “if I win, you lose.” Instead, ask yourself: What does winning really look like? How can we both walk away from this deal feeling like we’ve gained something of value? The answer might just lead to better deals, stronger relationships, and more sustainable success.
 
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.