If your business is searching for warehouse space in San Diego it is best to team up with an experienced and knowledgeable tenant representative whether you need space for a distribution center, warehouse space for manufacturing or production, or just storage space for your products.  Whether you are a start-up company, thinking of relocating your business, need to take on additional space, or need to downsize your current warehouse size there is no reason you should not take advantage of the services of a tenant representative.  Keep in mind that these services come at no cost to your business.
A tenant representative will provide you access to the entire San Diego Market, whether you are thinking of acquiring space in Carlsbad, Sorrento Valley, Vista, Oceanside, Poway, Rancho Bernardo, Otay Mesa, or any other San Diego submarket.  A tenant representative has the knowledge and resources to make sure you find the best location for your business and make sure you finalize your warehouse lease at the best possible lease rate and lease terms.  They will have the knowledge necessary to evaluate the lease, explain the pro’s and con’s of a short term lease (1-3 years) as oppose to a longer term lease (3-10 years plus), and will have answers to your questions regarding your warehouse search.  They will be able to hone in on space that have the number of loading docks prefers, grade level doors, certain clear heights, freeway access, etc.
A lot of people have the misconception that getting a tenant representative involved in the transaction will not get their business the best possible deal because they themselves will have to pay for the services or the landlord will have to pay out a commission to the tenant representative.  In truth, neither of these views are the case.  The commission is always paid out by the landlord and is simply split between the tenant rep and the listing agent.
 If no tenant representative is involved the landlord’s listing agent will take the entire commission.  In this situation the tenant is at a huge disadvantage because the landlord’s agent is looking out for the best interest of his client (the landlord) because the landlord is the one whom he needs to keep happy to keep the listing on the building.  The tenant rep will use all his resources to watch out for his client’s best interest because his interests lie in creating a good relationship with the tenant to get continued business and referrals. Therefore the tenant rep’s interests lie in getting the best deal possible for his client at the ideal location.
In conclusion, if your business needs or wants guidance in regards to your warehouse space search in San Diego get in touch with a solid tenant representation firm.

As your company strives to reduce costs and save cash, it is important to keep a look out on other companies that provide services to you that can have a material affect on your ability to conduct business productively, safely, and profitably. Specifically, your company’s landlord could be experiencing financial challenges that, if unresolved, could make it difficult for your company to enjoy a productive business environment, regardless of your continued rental payments.

 A number of issues could signal that your landlord is having difficulties, or may be headed in a direction that leads to losing the building.
1. Significant increases in vacancy in your building
2. Increases in vacancy in other buildings where your landlord has an ownership interest
3. Construction projects that start at your building but, languish unfinished for extended time periods (typically a sign that contractors are not being paid on time or at all)
4. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)
5. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)
6. Fewer landlord or management company employees visible on site
7. Decline in security, life and property safety services
8. Consistent lack of consumable items in restrooms and other areas
9. Interior office, common area, or window cleaning occurs less often
10. Trash not disposed of in a timely manner or is stored in basements and other areas
11. Landscaping not updated or maintained and / or grass is cut less often
12. General deterioration of the appearance of the building, parking lots, and grounds
13. Deferred capital improvements
14. Preventative maintenance announced or planned but, not implemented
15. Floors, glass, and metal and other interior components not polished or maintained
16. Band-aid repairs being made in place of needed capital replacements
17. Real estate taxes delayed or not paid
18. Mortgage payments delayed or not paid
19. Water, utility, or other payments delayed or not paid
20. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities
21. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants
22. Real estate brokers unwilling to show your building to prospective tenants, meaning that landlord is unable or unwilling to pay commissions.  This is typically the sign of a landlord low on cash.
23. Contractors seeking payment from you instead of landlord (indicates a lack of confidence on the part of contractors in their ability to be paid on time, in full, or at all)
24. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers
25. Landlord selling other assets
26. Landlord’s inability to sell or refinance your building
27. Change in landlord’s leasing program – agreeing to many short term leases to small, transient, and / or undesirable companies
What can you do to protect your company and assure that your environment remains productive, safe, and profitable, and that your company receives the services to which it is entitled?
Imagine planning and executing a well designed defensive operational and financial strategy, only to find out that the real estate your company leases may not be under your control and that the space may be pulled out from under you!   Your landlord may not be as good at pruning expenses and could lose your building, throwing into question your company’s rights to remain in its space.
Even if you have been paying rent you may not be able to stay in the building if the Landlord loses the building.  It depends on a number of factors, to who will end up with it, to what the process will be if the landlord does lose the building, to how thorough your company’s lease was negotiated in the first place and what protections that document affords you.
The first step is to read your company’s lease. Check all of the clauses that might impact your occupancy, including those pertaining to non-disturbance, landlord default, self-help, sublease, early termination, and others. Since your lease constitutes the rules of engagement, be certain to understand your company’s rights, privileges, and obligations, in the event of a serious landlord problem.
Make it your business to understand all lease components that could affect your company’s ability to remain in the building if the landlord were unable to support it financially. Specifically, does your lease provide for self-help (the ability to secure services that the landlord fails to provide) in the event that the landlord defaults in providing services to you? Can you contract for temporary cleaning and other services? Can you secure utilities directly from the utility provider? Can you do the above without putting your company into default of its lease?
What if the landlord actually goes bankrupt and ownership of the building reverts to the lender? Can the lender terminate your lease? Maybe! Does your lease require the landlord to secure a non-disturbance agreement for you from the lender? Has the landlord provided you with that document? A non-disturbance agreement, if written properly, will most often prevent a successor, like a lender, from terminating your lease.
By now, you’re likely asking: “Why would a lender terminate our lease? Wouldn’t they prefer to retain rent paying tenants?”
That, too, depends! It is possible that your building could have a greater value or a greater likelihood of being sold if it were vacant. Perhaps a larger tenant, or one that for some reason is more desirable, may want your space. Or, maybe your company’s use of its space is not conducive to the lender’s future plans for the building. Without a non-disturbance agreement, your company could receive notice to vacate and have little choice.
When commercial landlords experience financial difficulties, the tell tale signs may be easy to spot. In many cases, payments to vendors, service providers, taxing authorities, and others become delayed or are sometimes not paid at all. In others, the building shows signs of neglect.
If you believe you have reason to be concerned, do a little detective work. Check with the local property tax dept, utility companies, and other building services providers to confirm that bills are being paid in-full and on-time. Ask around, too. Are vendors, commercial real estate brokers, contractors, and others being paid in-full and on-time? But, be careful here. You wouldn’t want to spook anyone and create concern about your landlord if problems don’t exist.

REAL ESTATE: Some Major Deals Involve ‘Flex’ Properties, Which Include Office Space

Monday, November 8, 2010

Skittishness among employers about adding workers to payrolls, in the face of slow spending by consumers, is translating into still low demand for local warehouse and distribution space.

One result is that San Diego County’s industrial vacancy rate remained historically high in the third quarter of 2010 — at 10.5 percent, compared with 7.1 percent just two years ago. According to CoStar Group, which provides commercial real estate information, the county’s total industrial vacancy rate remained in single digits for a decade starting in 1999, but has consistently topped 10 percent since the fourth quarter of 2009. Also, local property brokers report that the countywide monthly asking rent during the quarter was 81 cents per square foot, down 13 percent from a year ago.

But industry observers point to signs of gradual recovery, and the region is seeing a slow deceleration in a months-long pattern of negative net absorption — in other words, more property being vacated than occupied.

“There’s a perception out there that we’ve reached the bottom of the market,” said James Duncan, a director in the San Diego office of brokerage firm Cushman & Wakefield.

Industrial leasing activity is increasing, but as with office space, the sector is seeing a large amount of musical chairs being played by tenants moving around for the best deals. Landlords are vying for tenants with leasing price breaks, periods of free rent, improvement allowances, and other incentives.

Mitchell International Relocates

Todd Murphy, a broker in the San Diego office of Cassidy Turley BRE Commercial, says there have been some big transactions recently in the realm of “flex” properties, which have industrial and office components. He mentions the move by locally based information technology provider Mitchell International Inc., which signed a 15-year lease valued at more than $60 million. Mitchell is relocating from the Scripps Ranch submarket to a University Towne Center-area property owned by Kilroy Realty Corp. and will occupy around 140,000 square feet in its new home by year’s end.

Murphy notes that Poway has also been a big gainer in industrial tenants, as defense contractors, led by General Atomics, have boosted their presence by leasing significant additional space in recent months.

Chris Pascale, a senior vice president in the San Diego office of CB Richard Ellis, says Northrop Grumman is similarly boosting its presence in nearby Rancho Bernardo.

Several other submarkets, however, are hurting as tenants seek better deals elsewhere or “right-size” their operations to do more with less space. Pascale notes, for example, that the vacancy rate for Miramar warehouses was less than 2 percent nine years ago, but is now more than 9 percent.

San Diego County not only has fierce local competition among industrial landlords, but also loses potential industrial business to places such as southwest Riverside County, where property purchase and leasing costs are lower.

Some Companies Seeking Space

Local experts say current conditions are likely here to stay for the next six to 12 months. Pascale says, however, that as the economy improves, industrial space demand could rise among companies like clean-tech providers looking to congregate locally.

Duncan says medical device makers and companies geared to wireless communications remain among the steady users of industrial space. He has also seen rising interest recently among nontraditional tenants scouting industrial sites.

Some are firms involved in the fitness and sports industries, including indoor volleyball clubs, swim training facilities, and one that uses trampolines for training. “Some of them just need those high ceilings,” Duncan said.

In its third-quarter industrial report, Cushman notes that absorption losses of 2008 and 2009 appear to be moderating. Year to date, the local market has 451,533 square feet of negative direct absorption, which is an improvement over the negative 2.8 million square feet in the first three quarters of 2009.

Overall leasing activity is improving, with 7.6 million square feet of new leases and subleases signed year to date, besting the 5.5 million square feet at the same point last year.

In the area of building ownership and investment, experts say loans in distress will likely become more susceptible to foreclosure in the coming months, as lenders run out of patience.

Among Least Distressed Markets

However, according to the research firm Real Capital Analytics, San Diego is among the nation’s least distressed commercial property markets, with 19 industrial properties with a total of $86 million in loans considered in serious default as of Aug. 27. Numerous properties in default were purchased at the top of the market between 2005 and 2007, and many are high-quality assets now over-leveraged.

Duncan says there is a slow but steady stream of potential property buyers, including owner-users getting federal small-business loans to help with purchases, provided they have good credit. Some are buying bank-foreclosed properties, fixing them up, and marketing them now or holding them for later sale when the market improves.

Glenn Arnold, a local broker with Cassidy Turley BRE Commercial, says a team that features himself and Murphy is on track to end 2010 with around 10 completed industrial property sales, on par with 2009 but off from the approximately 12-15 sales annually seen before the recession.

Overall conditions in the industrial segment are unlikely to change significantly until the employment climate and other economic factors improve, Arnold says.

CB Richard Ellis recently forecasted a 2.6 percent increase in manufacturing and distribution workers in the San Diego area during the next two years.

The county’s largest third-quarter industrial property acquisitions include BioMed Realty Trust’s $63.5 million purchase of UTC Executive Plaza in San Diego; J & D Laboratories Inc.’s $22.4 million purchase of a Vista building; and the $16.4 million acquisition of a building in the Kearny Mesa submarket by Government Properties Income Trust.

San Diego Business Journal
Industrial Real Estate Countywide a Mixed Bag
INVESTMENT: Area Ranked 15th of 27 Metro Markets, Up From 20th in ’09
By Lou Hirsh

Monday, July 12, 2010

San Diego’s industrial real estate sector is seeing a mixed bag of trends at the midpoint of 2010. Observers note that tenants are enjoying a competitive market that remains in their favor, as landlords negotiate to keep them in place with rent price breaks and other incentives.

Vacancies and loan distress remain lower than in other property sectors, especially offices, but because rents have fallen, potential sellers and investors remain cautious in the industrial segment.

“You don’t see a lot of properties coming up for sale,” said Sam Hanna, a senior associate in the San Diego office of commercial brokerage and research firm Marcus & Millichap.

While the first quarter included FedEx’s purchase of a large Otay Mesa property, Hanna said he was not aware of similar major industrial transactions in the second quarter.

There are a good number of single-tenant spaces on the market, but he said those are not in demand among investors as much as multi-tenant properties that offer multiple income streams when occupancy is maintained.

Despite the relative slow activity level, San Diego County has moved up in Marcus & Millichap’s annual national ranking of the nation’s major industrial markets, based on factors including job growth and real estate supply and demand.

The newly released mid-year ranking, designed as a guide to nationwide investors, showed San Diego placing 15th among 27 metro areas tracked by the firm. A year ago, the region ranked 20th.

Vacancy Rate Trending Upward

The report projects that San Diego will finish 2010 with 1 percent employment growth, compared with a 5.4 percent drop in 2009. Also, the region will add 362,000 square feet of new industrial space by year’s end, after 597,000 square feet was added in 2009.

As a result, the vacancy rate this year will rise only slightly from year ago, going from 12.1 percent to 12.4 percent.

By comparison, the number-one-ranked industrial market, Houston, is projected to grow its employment base by 2.2 percent this year and add 1,600,000 square feet of industrial space, about a quarter of its 2009 level. But its vacancy rate is projected to end 2010 only slightly lower than San Diego’s, at 10.1 percent.

Nationwide, Marcus & Millichap notes that industrial builders will deliver 25,000,000 square feet of new space this year, about one-third the level of 2009 and less than 15 percent of 2008’s output.

The nationwide vacancy rate is expected to rise slightly by year’s end, to 13 percent, with tenant demand lagging the economic recovery slightly, with growth in demand gaining momentum in the second half of 2010 and accelerating next year.

A key issue currently dragging on industrial demand nationally is housing construction, with completions and starts still well below pre-recession levels. One result, researchers said, is that housing-related contractors who typically occupy space in multi-bay industrial properties “will not recover sufficiently to boost space demand for several quarters.”

Ryan Grove, a senior vice president in the San Diego office of brokerage firm Jones Lang LaSalle, said the local industrial market continues to recover gradually from the bottom it reached in 2009, when the region saw 4 million square feet of negative net absorption.

“It probably will be around 2012 before we see things consistently riding well above the bottom,” Grove said.

Defense Companies Leasing Space

He noted that while there were no major purchases during the second quarter, there were a “handful” of large leases in the 50,000 to 75,000-square-foot range.

The defense industry has been particularly active in buying and leasing industrial space. For instance, Grove pointed to General Atomics, which has recently purchased and leased some large spaces in Poway and elsewhere along Interstate 15.

As with office space, tenants continue to shop the market aggressively, sometimes obtaining long-term savings of 20 to 25 percent on their leasing costs by negotiating with their current landlords.

“Tenants with more than two years left on their lease are asking their landlord to renegotiate so they can lock in lower market rates for the next 10 years,” Grove said. “If the tenant is large enough, the landlords agree to it — they don’t want to have to fill those spaces.”

Grant Schoneman, a local Jones Lang LaSalle associate who focuses on the life-sciences sector, noted that vacancy rates are currently higher than the general industrial rate, at 13 to 14 percent.

While the landlord-tenant dynamics are similar, he said there is a little less moving around among tenants. Generally, it is more costly for landlords to improve spaces to meet the needs of specialty companies such as biotech firms, and also more difficult for such firms to relocate without getting those needed upgrades in a new location.

In its own second-quarter report on the San Diego industrial market, the brokerage firm CB Richard Ellis said the direct vacancy rate at the end of the second quarter was 10.2 percent, down from 10.5 percent at the end of the first quarter. Still, it was higher than the 9 percent at the halfway point of 2009.

The firm said net absorption in the second quarter was positive for the first time since the third quarter of 2008, with 241,709 square feet absorbed.

The Escondido submarket saw the largest positive net absorption in the latest quarter (110,027 square feet) and the Miramar submarket had the greatest amount of leasing activity (478,308 square feet), CB Richard Ellis reported.

San Diego has many different submarkets that have industrial buildings and warehouse space, but an area that is competitively priced is North County. The major industrial submarkets in North County are Oceanside, Carlsbad, Vista, San Marcos, Escondido, Rancho Bernardo, and Poway. Other submarkets include Encinitas and Del Mar but they have little industrial space to offer.

The most cost effective submarkets in North County are Vista, San Marcos, and Escondido with listing prices starting in the 40 cents per square foot range, plus utilities. These submarkets all have good freeway accessibility and are ideal Distribution Hubs for businesses. The major freeways that run through these submarkets are Highway 78 & Interstate 15. Highway 78 gives businesses quick access over to Interstate 5 which also makes it a convenient location if you are looking for a distribution center to service the Orange County area. So whether your company distributes beverages, dairy products, clothing, sports equipment, salt, bakery goods, or any other product North County, San Diego is a good location to have a distribution center. One of the largest Distributors in San Diego, Markstein Beverage Co., has had its home in San Marcos for a number of years.

The Poway submarket is more expensive than Vista, San Marcos, and Escondido but offers a more centrally located area for a business that will be distributing its product in all of San Diego, by providing a location that will reduce fuel cost.

If your company is looking to open its own distribution center or needs an additional distribution location it is best to get the advice of a real estate professional to help you locate a space that provides the ideal location, the appropriate size, the ideal number of loading docks and grade level doors, a sufficient amount of electric power, and the most efficient office space layout.

A tenant representative will be able to help you find the ideal location and also help your negotiated your lease and make sure your business achieves the best possible lease rate and lease terms.

Synergy Real Estate Group, Corporate Advisory LLC :  www.synreg.com

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