Shortage of Inventory? No Problem

Image Attribution:www.clipart-library.com 

There is an acute lack of available buildings for lease and sale in Orange County and the Inland Empire. In most cities and size ranges, 98 to 99 of every 100 spaces is occupied. The culprits? Lack of new construction, exponential growth of industrial operations, and increased competition from well funded investors. In short, demand outstrips supply and has for several years. This time last year - when a pandemic fueled pause persisted - we believed the end to shortages was finally near. But alas, in June of 2020, the turbo charged appetite for manufacturing and logistics locations voraciously returned.
 
But, there are ways to creatively solve the dilemma. Below, are just a few.
 
If you’re looking to buy, consider leasing. Currently, we represent a well qualified buyer looking to purchase 200,000 square feet in the IE. Alternatives to buy are rarer than Elvis sightings. A quick scan of the multiples yields fewer availabilities than digits on your left hand. However, a similar survey of lease options is brighter with several more choices. Sure. With a lease you pay rent to another when you could be funding your retirement - but at least your revenue will grow in the larger building. Once your lease terms out - consider re-entering the buying fray.
 
If you’re looking to lease, consider buying. Our food processing client is having a bear of a time locating a facility to lease. Ideally, the spot will have some of the special purpose goodies he needs - floor drains, washable walls, and substantial power. Slim pickings! However, we did source a prime deal for him to buy. We can couple our tenant with an investor who can buy the building, construct a long term lease and voila - everyone wins!
 
Make unsolicited proposals. Occasionally, we will find a gem by panning for gold. Be aware - offering on a property not on the market is inefficient. Generally, there is little room for negotiation. Sellers have not fully considered the tax impact. Third party reports such as inspections, surveys, environmental, and appraisal must be generated. Finally, motivation to sell is strictly based upon the price you offer. Any variance from your offered price - if you discover something wrong - will be met with a resounding no. We have found a few sale opportunities by scanning buildings for lease. The math of selling a vacancy vs waiting for a tenant can sometimes make sense.
 
Wiggle, wiggle, make it work. My wife is a seamstress. In the past, she taught countless young folks to sew. One of her sayings was “wiggle, wiggle make it work” when shoring up a pattern. If you look at your current setting, additional square footage may be found. How wide are the aisles in your warehouse? If you slim them down to “very narrow” - you multiply the capacity. Are you maximizing the cube of your space? By stacking higher - this is accomplished. I’ve seen some very cool production mezzanines which double your floor space. If you have no place to put that new injection molding machine - consider a mezzanine.
 
Find the soft spot. Recently, we completed a deal with a logistics company. When all of their musts were identified - nothing was available to tour. The reason? Required was more office space than the typical warehouse building sported. Our solution was to separate the office need from the operation. We found a plethora of available suites close to the mother ship.
 
Outsource! People, inventory, machinery. Generally, these three drive increased revenue - and require more space - albeit different types. Folks require an air conditioned, carpeted office. Inventory? Racking and stacking. That new CNC machine that cranks out parts needs floor space. A careful dissection of the increased enterprise is in order. Will the business be generated by a larger sales force? Maybe a virtual group could be considered. Factory reps do this sort of work. For finished goods that need a place to rest - many of our clients use a third party logistics provider for the ebb and flow of warehousing. Avoided is a long term commitment to square footage. Have you considered using another producer to manufacture for you? Until you scale and the cost benefits level - you can produce more without the investment in machinery and the need for a place in your plant.
 
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.