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The
tail end of 2018 has shown some signs of a cooling economy - which have been
well documented in this space - a slowing housing market, rising costs of doing
business, stock market gyrations, uncertainty.
So,
to the question - what creates vacancy? Seemingly an easy answer - someone
moves, right? In practice, however, complicated elements underlying the move
exist. Indulge me while I describe in detail a few of these circumstances.
The
business is sold. Merger
and acquisition activity in our market has never been greater. If you talk to
ten company operators - three have recently sold and two more are in serious
talks to sell. For those keeping score - yep! Half of the small businesses are
in play. Frequently, buyers are in the same industry as the companies they
court. Therefore, once the sale is complete - excess building capacity exists -
thus one or more of the buildings is scrapped.
Right
sizing the operation.
Automation, advanced material handling solutions - higher racks, electric lift
trucks - just in time deliveries, the use of third party logistics providers -
all allow an operation to function in fewer square feet. When coupled with a
cheaper overall rent - smaller footprint - a move can occur to save costs.
Ownership
of the business is different than ownership of the building. Many times a small business
will have multiple owners. If the business ownership is synonymous with the
ownership of the commercial real estate - great! A nice symbiotic relationship
exits. Over time, however, this balance can shift - leaving two disparate
parts. The most extreme example I’ve witnessed? A building ownership had
morphed into a collection of exes, former girlfriends, a church foundation, the
owner’s children, and the occupying business. Unfortunately, no lease existed
with the operation in residence and the new improved ownership decided the real
estate was worth more vacant. Adios tenant. Time to find new digs.
Another
state lures the company. Our
business community is the target of several business friendly states touting
abundant labor, cheaper taxes, and incentives to re-locate. It’s working.
Closure.
Unfortunately,
we experience businesses who must shutter their operations. Foreign
competition, escalating costs, an obsolete product, the “Amazon” effect, can
all spell the demise of once viable companies.
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
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