Users Demanding More Functional Space

IRVINE, CA—Whether the users are industrial or office-related, they all want space that gives them more bang for their buck, Unire Real Estate Group’s founder and president Mark Harryman tells GlobeSt.com exclusively. In Orange County, in particular, industrial fundamentals will continue to strengthen, with healthy job growth projected for the foreseeable future, making the industrial sector even more important to this market, says James Breeze, director, southwest US research, for Cushman & Wakefield. “Local economic indicators play a major role in the Orange County industrial market. Like Los Angeles County, there is minimal land available for industrial development, which will put downward pressure on vacancies to below 4% in the coming years and upward pressure on asking rents to exceed $.80 per square foot per month by 2017.” As Unire celebrates its 15^th anniversary this year, GlobeSt.com spoke with Harryman about what logistics companies are seeking in their real estate and how the industry as a whole has changed since the company’s inception. GlobeSt.com: We know that industrial users—particularly logistics companies—are seeking more-functional space, but how is this trend showing itself in the office sector? Harryman: Our tenants are voicing a continued demand for more-functional space. Logisticcompanies are seeking larger loading areas, better truck access, trailer storage and a higher count of dock doors to help the flow of goods in and out of their space. For office, it all depends on the user. Tech and startup companies are definitely seeking more collaborative/functional space—even moving into industrial buildings to create open floor plans. The more-traditional firms are still in need of class-A, high-private office build-outs. Law firms will always want private offices. It all depends on the user and their office objectives. GlobeSt.com: How are third-party logistics companies changing the demand for warehouses? How are these demands being met? Harryman: There has definitely been a flight to function and location for the logistic companies. It is essential for the logistics companies to be close to their customers. Some of our tenants with a high goods-turnover rate are seeking buildings close to the port. Other large space users see a benefit in locating in the Inland Empire, where they can move into a newer/larger building. One constant demand for all users is larger storage yards for containers and trucks. One example of this is a project we currently manage in Torrance, CA, for one of our institutional clients. The asset is being transformed to remove square footage within the warehouse in order to add more dock doors and create a larger truck court. GlobeSt.com: How has the commercial real estate industry changed in the 15 years your company has been around? Harryman: Since 2000, the commercial real estate industry has changed dramatically. Vacancy rates have continued to decline in the industrial sector. We continue to see the demand for larger space increase. Fifteen years ago, a 1-million-square-foot industrial building was virtually unheard of, and now buildings this size are being developed on a speculative basis. We have seendevelopers continue to build farther and farther away from the port to fulfill the demand. We are in a build, build, build mode right now as vacancy rates across all of the Southern California submarkets continue to fall. Cap rates continue to decline, and institutional capital chasing investment opportunities is at an all-time high. GlobeSt.com: What other industry trends are you noticing, particularly in the Orange County market? Harryman: One major trend is the next wave of younger entrepreneurs going out on their own to develop, create value and operate commercial real estate. The amount of equity seeking returns in real estate is staggering. Everyone is chasing yield, trying to place equity in CRE. This huge amount of equity is driving cap rates down and igniting development. It is an amazing time for all of us in the commercial real estate industry.