Friday, July 28, 2023

Journey Along the Strait. Where History Meets Real Estate

Greetings from the Strait of Juan de Fuca! As I traverse the picturesque towns bordering this historically significant waterway, I can't help but marvel at the unique blend of past and present that shapes the landscapes around me. From Sequim's lavender fields to the quaint charm of Whidbey Island, and from the rugged beauty of Port Angeles to the Victorian allure of Port Townsend, each place has its story to tell.
As I stand on the shores of the strait, it strikes me that this is not just any body of water. Unlike the Bering Strait or the Strait of Gibraltar, the Strait of Juan de Fuca holds a distinct peculiarity - it serves as the international boundary between Canada and the United States. In 1787, the maritime fur trader Charles William Barkley named it after Juan de Fuca, the Greek navigator who embarked on a Spanish expedition in 1592 to seek the legendary Strait of Anián.
But you may be wondering, what on earth does all of this have to do with commercial real estate? Bear with me as I weave the threads of history, geography, and property together.
The towns that line the Strait of Juan de Fuca have witnessed a rich tapestry of events, with maritime trade being a common theme in their stories. The influx of traders and settlers in the past laid the groundwork for the thriving communities we see today. Sequim, known for its lavender farms and breathtaking landscapes, has seen a surge in tourism, leading to growing demand for commercial properties like boutique hotels, quaint cafes, and craft shops that cater to visitors seeking a slice of tranquility. That’s what lured us here as my wife visited Sequim a few years ago to dye cloth. 
Whidbey Island, with its idyllic surroundings and artistic vibe, has also become a magnet for tourists and creative minds alike. The real estate market here has adapted to the influx of artists, writers, and nature enthusiasts, with charming studios, workshops, and eco-friendly accommodations becoming the new norm.
In Port Angeles, where the Olympic Mountains meet the sea, the maritime history is still palpable. While the shipping industry has evolved, the waterfront properties have retained their allure. With breathtaking views of the strait and the nearby islands, developers are keen on creating modern commercial spaces that respect the town's history and unique setting.
Port Townsend's well-preserved Victorian architecture takes us back in time, but the real estate market here is far from stagnant. The town's heritage buildings have found new life as boutique shops, galleries, and restaurants, each property contributing to the vibrant local economy.
Seattle, the urban heartbeat of the region, showcases a different facet of commercial real estate. As a bustling metropolis, the city boasts an array of high-rise office buildings, tech hubs, and commercial centers. I’ve not seen the number of cranes rising from down below in any major city recently. The economic ties between Seattle and neighboring Canadian cities have further fueled cross-border investments, making the region a melting pot of cultures and business ventures.
Next week, as we sail towards Alaska on the Quantum of the Seas, the significance of the Strait of Juan de Fuca becomes clearer. Its history has shaped the present, and that includes the world of commercial real estate. From quaint towns preserving their past while embracing the future, to vibrant cities that thrive on innovation and international connections, the strait's influence reverberates through the properties that shape these communities.
So, the next time you set foot in a historic building turned modern commercial space or enjoy a relaxing retreat by the water, take a moment to appreciate the hidden stories woven into the fabric of the place. History may be in the past, but its echoes are forever present in the towns and properties along the Strait of Juan de Fuca.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, July 21, 2023

Status of 2023 Predictions

We’ve now eclipsed six and one half months of 2023. Wow! That was speedy. As our temperatures in SoCal have heated, so has our national economy. At the same time and similar to this spring’s weather, inflation has cooled as the federal reserve’s tightening policies seem to be working. We’re still above the 2% target as sought but core inflation is now running around 3% on an annualized basis. Meanwhile, interest rates as pegged by a spread over the 10 year duration treasuries are still historically low but significantly higher than the pandemically plagued years of 2020-2022. I generally wait until a full year passes before I dissect the previous years predictions. But last year and this, things have moved so quickly - I felt it was worthy to do a mid year recap. After all, we are in earnings season as our big employers report progress. So I’ll pretend to be a big employer and report mine. 
In January of this year, I wrote:
Industrial real estate. Third party logistics providers will give back space. If you’re unfamiliar with the term - 3PL or third party logistics provider - allow me to explain. Simply, a 3PL is an outsourced warehousing service. Say you’re a company that needs to get your product distributed to Walmart but don’t have the space or inclination to do so yourself. Enter the 3PL who will charge you - by the pallet - to receive, store, re-package, and ship your goods for you. For the past three years - to keep up with the demand of online shopping - 3PLs thrived and leased hundreds of thousands of square feet of logistics boxes. With the “de-inventorying” currently occurring, these providers need fewer square feet. But there’s an issue as many signed term leases which still have time to go. Therefore look for much of this excess to enter the market as sublease space. July 2023 update. We’ve seen a fair amount of give back as Amazon started the whittling process in late 2022. The push for space seems to be a lot less rabid than it was in 2021 and 2022. I frankly thought we would see more space returning to the market from third-party logistics providers. Although we’ve seen a bit of this it’s not happened on a wholesale basis the way I anticipated. So this one falls into the category of let’s wait and see what happens for the balance of the year.
Recession? I vote no. How’s that for contrarian thinking! Here’s how I read the tea leaves. The Fed came out with guns blazing last year with three .75% and one .5% rate bumps. As we’ve discussed, this increase affects the rate in which banks borrow. The theory is more expensive money will cool a white hot economy as businesses will re-think borrowing for expansion. If you look at Gross Domestic Product or GDP for the third quarter of 2022 - it actually increased over Q2. By the time you read this, we’ll have a glimpse as to how the fourth quarter fared. Now couple that with core inflation which has declined for several months. Finally, retailers are shedding inventory as mentioned above. In fact this is deflationary as things are on sale. Now some might counter by opining - we’ve not felt the full impact of the Fed rate increases, folks are spending that idle cash left over from the pandemic, and massive layoffs await. We’ll see. I choose to believe in the resiliency in the US economy. Plus. Did you visit a mall, restaurant, or attempt to book a flight during the holidays? Bedlam! July 2023 update. I nailed this prediction as our economy has not fallen into recession. Some would say the full impact of the federal reserve’s rate increases have not been felt throughout. I still believe in the resiliency of the United States economy, our ability to innovate, and the seemingly unstoppable consumer. We will see what the next six months holds, but I for one believe that we have “stuck the landing” and will avoid a recession.
 Return to the office. Much has been written on this subject. We’re starting the third year since all of us were forced to return to our spare bedrooms. Remember that fateful day in March of 2020? Like yesterday! Fortunately, our team had spent the previous few months figuring out how to duplicate our desktop mobily. Did we have insider scoop? No. We just wanted the flexibility to do stuff in a client’s lobby, our dining room, or the front seat of our car without losing productivity. We were lucky. When the order came - we simply unplugged, drove twenty minutes home and plugged back in. Many were not so lucky and found themselves grappling with how to remain viable. Others simply ordered a bunch online and ate alot. I heard this from a friend. 😎I predict workforces will return to the office this year. Sure, a hybrid model will be employed where - as an example - Tuesday-Thursday will be office days and Mondays and Fridays will be optional work from home. July 2023 update. I read with great interest Jeff Collins and Jonathan Lansner‘s columns that appeared in the Orange County Register yesterday. Vacancy throughout office space has doubled since the pandemic in 2020. The new normal is a hybrid workspace with the exception of a few industries. As an example the wealth advisory businesses are back to the office full-time whereas flexible industries such as real estate, healthcare, insurance, are still working remotely. I would count this prediction as a miss thus far but we’ll see what the next six months bring.
Retail. A continuation of the experiences that brought us back to brick and mortar stores in 2022 will continue. As examples. On a recent visit to Main Place, we were serenaded by era dressed carolers, and our grandsons thrust into a cube of stuffed animals as human claw machines. I’ve never seen the place so packed! My wife and I commented - what recession? Sans these experiences, however, I’m afraid the on-line shopping is easier. What’s avoided are out-of-stocks, surly clerks, crowds, and no parking. Speaking of Main Place. Our favorite parking spaces are now consumed with a multi family building which is under construction. Providing your own customer base and foot traffic - once the units are fully occupied - is always a great idea. But how cities choose to eliminate tax basis while at the same time increasing police and fire service remains the tug-of-war. July 2023 update. Brick and mortar retail continues to it astonish me. I recently purchased some items online and chose to return them at the store versus dealing with reboxing and shipping them through UPS. I was greeted with lines in the return lanes that would rival 405 traffic on a busy weekend. One of these was a lower end big box retailer and the other was a higher end specialty seller. Expected would be the lower end store to be busy but I was surprised to see the higher end specialty retailer just as busy. People are traveling! I recently heard a report that the July 4 weekend was the busiest in Los Angeles international airport’s history. It appears the pent-up demand for wander lusters is quickly unfolding. 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, July 14, 2023

New Construction Abounds. Where Are The Tenants?

The last big - prior to now - industrial building boom in Orange County occurred pre financial meltdown - circa 2003-2006. During that time frame, several sleek new industrial projects dotted the geography of Anaheim south to Irvine Spectrum. Aging manufacturing campuses gave way to class A developments. Noteworthy among these during the period were the Johnson Control Campus in Fullerton, Mission Land acreage in Brea, Fender buildings in Fullerton, and some of the Boeing holdings in northeast Anaheim. Also interesting were the sizes constructed. Typical were boxes between 10,000 and 50,000 square feet. The land pricing, city influence, capital appetites, construction costs, and market demand all coalesced to create some beautiful new inventory. Our local economy was bustling and owner occupied financing was readily available. Many of the project’s buildings were gobbled up pre-completion. Housed were locally owned manufacturers and logistics providers who took advantage of owning the premises from which they operated. Generational wealth was created as these addresses have continued to appreciate while no new similar sized stock has been developed. 
Flash forward to the next wave which began in 2014 and continues today. The Beckman cluster of buildings in Fullerton gave way to a group of large logistics hubs totaling almost 1,000,000 square feet. National Oilwell Varco shuttered plants in Brea and Orange. Brea now boasts a 108,000 square foot address while demolition on Orange started this month. Planned are two new addresses - one is 100,000 square feet and the other 189,000 square feet. Excess land owned by Suzuki in Brea formed the basis of three class A structures. The former Kimberly Clark manufacturing location in Fullerton was scraped and replaced by four buildings equaling over 1,600,000 square feet. Tenants such as Bandai, Samsung, and Sprouts now call the addresses home. And there are several more in Anaheim, Fullerton, Brea, Irvine, and Garden Grove. Interestingly, despite the significant investment and construction efforts, there seems to be a glaring absence of tenants ready to occupy these remaining newly built spaces.
To understand the conundrum of vacant properties, we must examine the current market dynamics. The economic and market conditions that fueled the previous industrial boom differ from those we encounter today. Fluctuating land pricing, changing city policies, varying capital availability, rising construction costs, and shifting market demands all contribute to the complex equation. During this boom, pronounced was delivery of inventory in excess of 90,000 square feet. Unlike the Inland Empire - where 100,000 square foot buildings are considered small - locally, our sweet spot is well below this mark. One notable shift between the previous and the current wave of construction lies in the ownership models. In the past, owner-occupied financing was readily available, enabling local manufacturers and logistics providers to secure their own spaces. However, this time around, we witness a different landscape with a diverse range of investors and owners driving the construction projects. The motivations and investment strategies of these new players align with the needs of large potential tenants - which are awaiting some certainty before moving - further exacerbating the vacancy issue.
There seems to be a glut of available stock between 90,000 and 150,000. Two in Brea, one in Fullerton, one in Garden Grove, two in Anaheim, and four south of the garden grove freeway in Irvine. The sizes above 150,000 and short of 200,000 finds three alternatives in Anaheim and Irvine. Combined there are thirteen units that need occupants five are completed and open for business and the other eight will deliver this year. Generally all are for lease only - which eliminates occupants in this size who want to own. Asking rates exceed $2.00 NNN. Class A buildings leased for less than a buck in the mid 2000’s. 
So what does all of this mean? In this author’s opinion we have a demand problem coupled with an inventory surplus. Generally, that imbalance is solved through an increase in demand by price reductions. No one has moved in this direction but someone will soon which resets the market comps to a new level. While the reasons behind the absence of tenants are multifaceted, understanding the current market dynamics, exploring ownership models, and analyzing the evolving demands of businesses are key to unraveling this puzzle. By embracing innovative solutions and long-term thinking, Orange County can unlock the potential of these idle spaces, ensuring a vibrant and prosperous future for the region's industrial landscape.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is

Friday, July 7, 2023

Big Sky Revelations. Commercial Real Estate Insights Gleaned from a Week in Montana

My wife and I are steadfast on experiencing all fifty United states. A stop at an airport doesn’t count in our scoring system. You must set foot on the ground and spend a minimum of one hour. Ideally, touring the countryside by car vs harboring in the major enclaves is our goal. As I reminisce about our recent sojourn in the captivating state of Montana, I am struck by the profound lessons it offered - a tapestry of wisdom woven into the fabric of its breathtaking landscapes and untamed spirit. Beyond its natural allure, Montana holds valuable insights for commercial real estate. In this column, I invite you to embark on a journey with me, where we explore the unique characteristics of Montana and unravel the hidden treasures it reveals, informing and inspiring our approach to the dynamic world of commercial real estate. 
Sustainability and Outdoor Integration
Montana's ethereal beauty and steadfast commitment to preserving its environment offer a template for us. Such as, embracing sustainability practices - green building designs, energy efficient technologies - to enhance property value and appeal. Also, the potential of integrating outdoor spaces and recreational amenities, creating vibrant commercial spaces that entice both tenants and customers alike.
Navigating frontier markets
Montana's vast and sometimes rugged frontier presents a unique learning for commercial real estate. Akin to the copper kings in the late 1800s who realized the discovery and widespread use of electricity would require an unfulfilled need for this metal - an investor can identify promising opportunities in emerging areas. By taking into account factors like infrastructure development, transportation networks, and economic diversification joined with the challenges of limited resources, market access, and tenant attraction in sparsely populated regions - valuable opportunities for investment are uncovered. 
The Power of Local Engagement. 
Montana's strong sense of community and close-knit social fabric holds important lessons for fostering connections in our profession as well. Engaging with local stakeholders, understanding community needs, and integrating their perspectives into commercial property development is a must. By forging relationships with local businesses, organizations, and residents, we can create mutually beneficial partnerships and contribute to the overall success of our projects.
Tapping into the Tourism Economy. 
Montana's thriving tourism industry offers a captivating case study for understanding the impact of visitor economies on commercial real estate. Orange County is no stranger to tourism as Disneyland, Knott’s, our professional sports teams, world class restaurants, shopping and the beaches attract millions of visitors each year. Seldom do we consider how tourism-driven markets influence property values, rental rates, and occupancy levels.
Venturing through Montana transcends the confines of travel - opening our eyes to life altering insights that shape the world of commercial real estate. From embracing sustainability and harmonizing with nature to navigating frontier markets, engaging with local communities, and capitalizing on the tourism economy, Montana's lessons propel us toward a new way. 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at or 714.564.7104. His website is