Random Commercial Real Estate Thoughts

Occasionally it’s good to purge my inbox and my mind. After a week in the place of my birth - Texarkana, Arkansas - there’s much to unpack - literally and figuratively. So, allow me to unload a few items swirling in my consciousness.
 
Thanks to all who commented. The outpouring of love and kindness resulting from my column last week - 6 Lessons my Mom Taught me About Commercial Real Estate - was amazing! Thank you to each of you who took your time to read the column and send me a note.
 
28th Annual AIR CRE Fall Market Trends. The Association of Industrial Real Estate met in November for a discussion of what’s happened in 2022 and what we can expect in 2023. On the dais were Jaclyn Ward of JLL, Kelly Johnson of Colliers, Michael DiBernardo of the Ports of Los Angeles, and Gerald Singh of Oltman’s Construction. Moderating the discussion was James Breeze of CBRE. As panels go, this was very well done, rehearsed and filled with information.
 
I found particular value from Jaclyn’s description of the state of office leasing - given the uncertainty that mires long term space decisions. But three applications were unveiled in her talk which I found interesting. Office tenants are separating into distinct genres - office first, home first and hybrid. Firms such as Goldman Sachs have adopted the attitude - you’ll come in to an office to ply your trade or you won’t. But if you don’t, look for employment elsewhere. Many of the content creators - Apple, Amazon, Facebook, Zoom, DropBox eschew the work anywhere mantra. And then you have those - our firm being one - that allow a mix of in an out. The out is fine so long as productivity is maintained. Our production is easy to track - you’re either selling buildings or you aren’t. Ok. Maybe these are old themes. Certainly since 2020. But, home first and hybrids realize that culture, employee attraction and retention, mentorship, and training all ebb as time away flows. There’s a concept know as clubhouse which is gaining traction. Addressed are these issues in a space suited for same. Akin to a ballroom at the Marriott reserved for an annual meeting - club housing retools space to suit the needs of an organization.
 
Michael DiBernardo answered a burning question I posed in this space a couple of months hence. Why are there Christmas decorations in Lowe’s in September? The answer is simply many big box retailers front loaded inventory early in 2022 to avoid supply chain snags. Faced with warehouses filled with seasonal items - retailers shipped things like fake Christmas trees to their stores to free up space. Things at the port of Los Angeles have largely returned to normal with four to six cargo ships waiting in the unloading queue. At its zenith some 104 waited at anchor. Container costs have also returned to par with a cost of $2000 vs the $20,000 this time last year. You’ll see some changes in the months and years to come as the basin edges toward zero emission vehicles by 2030 and 2035.
 
Gerald Singh recapped construction topics - cost escalation, and lead times since March of 2020. Since May of 2020, construction costs have increased 67.7%! A typical 100,000 industrial box now weighs in at $86.75 per square foot. Before you race out to build your own - remember land, architectural, engineering, off-site costs such as storm drains and curbs, on-site costs such drainage plus carrying expenses must be added. Oh yeah. Don’t forget if you said go today - you’d be lucky to have a building completed by Q4 of 2024 - largely due to the city’s entitlement processes and long lead times for construction elements. As an example, a roof structure requires one year to deliver.

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.