In the tight Southern California industrial
real estate market, fierce competition
requires an even fiercer strategy.
Domestic businesses housed in the Inland
Empire need room to grow. Streaming in
an unrelenting current, shipments from
Asia flood in through the ports of San
Pedro and Long Beach. These combined
demands have pushed vacancy rates down
to a very low level. Right now, they sit at
less than 6 percent.
“The industrial market is very tight in most
of Southern California, ” says David Salazar,
Managing Director with CresaPartners in
Ontario, Canada. “You’re competing against
both existing and new industrial companies
for the best building in the best location.”
Smart Business spoke with Salazar
about how to surpass the competition and
complete the best deals in a challenging
industrial real estate market through a
proactive strategy.
What makes capturing prime industrial
space so difficult?
With two major ports in the vicinity, the
Inland Empire has become the distribution center for the entire western United
States. Even with the slowdown in the
economy, we’re continuing to see high
demand in the area. In terms of imports
from the Far East, shipments continue to
be strong. In this type of environment,
tenants have a hard time getting the best
deal on real estate transactions. In order
to secure the lowest cost of occupancy
on the building that is the right size and in
the right location, businesses must be
strategic to create opportunities for
themselves.
Why should businesses start the process
years in advance?
One of the biggest mistakes that companies make in terms of finding the best
industrial facility is waiting too late to
start the process. Each day that brings
you closer to a lease expiration decreases
your options to create leverage with the
landlord. If you want to have time on your
side, you should begin to develop a strategic plan one to two years before you need
to make a final decision.
Even if you want to stay in your existing
location, working on the process in
advance gives you the option of considering all possible alternatives and understanding the trends that are in the marketplace. This will be invaluable when you
begin the negotiation process with your
landlord. The objective of starting early is
to give you a competitive edge.
How can a strategic plan give companies a
competitive advantage?
A real estate plan should support the
company’s business objectives. Costly
mistakes can be avoided if there is true
alignment of the real estate objectives to
the company’s business plan. By taking
the time to plan how real estate can support a company’s short- and long-term
needs, companies move from a reactive
position to a proactive position of
strength. The objective is to develop a
plan that meets the company’s financial,
operational and logistical needs.
What should businesses do after they formulate their strategy?
Once the plan has been approved internally, the manager responsible for the initiative should begin to work with an
industrial real estate adviser. You should
make sure that your adviser’s objectives
are in alignment with your plan and that
he or she does not have any conflicts,
such as representing landlords. You want
your own advocate, an adviser that has
your best interests in mind. Services
should include market research, transaction management and project management. The team should be organized with
a single point of contact. Review of the
plan by all parties will help assure a timely and financially successful outcome.
Your adviser can investigate the marketplace. This includes research of local
trends and conversations with large developers. Getting in on projects early can create win-win situations where you secure a
property at a competitive rate and possibly have a say in some design and customization options.
What other tips can you offer for effective
renewal or new lease negotiations?
One way to decrease the stress of negotiations is to try to control the property for
longer periods of time. Signing a long-term lease may provide your company
with greater concessions from landlords.
It also provides you with greater control
of the property over an extended period.
If renewing the lease is the objective, creating a competitive environment by identifying possible alternatives will increase
your negotiating leverage. If you have a 10-year lease and know you want to stay, you
could start the renewal process in year
eight or nine. This locks in the deal prior to
the property going back on the market.
Finally, using a tenant representation
specialist will provide you with a personal
advocate and can help to avoid possible
conflicts of interest.
DAVID SALAZAR is the Managing Director for CresaPartners in Ontario, Canada. Reach him at [email protected] or (909)
456-8825.