Over the last couple of weeks, we’ve explored the ebb in demand for industrial real estate: why it’s happening and how to measure the market’s pulse through a tool known as the sentiment index.
As logistics inventories have swelled, creating a shift in favor of occupants, we’re fortunate to be representing an e-commerce distributor expanding into the Inland Empire. In the size range we’re targeting, the choices are abundant.
To focus our client’s search for only the best options, we reduced the initial list from 47 properties down to 19. Yes, you read that right: 47 choices in this market. To narrow down, we eliminated short-term subleases, locations tied up through our client’s target date, and any projects still scheduled for completion in early 2025. But even with 19, touring each of these sites is a Herculean task.
From coordinating with agents, previewing buildings, and clarifying each owner’s motivation and pricing, to planning a seamless tour route — it all adds up. And the toughest part? Keeping all 19 locations fresh in our minds, accurately ranked as to suitability. To stay sharp, we use a system we call SPACE. Here’s how it works:
Each category is scored on a scale from 1 to 10, with 10 being the best. For instance, if the building is at a prime intersection, “C” for Coordinates gets a 10.
S = structure of the transaction. This covers lease terms, free rent, extension options, rights to buy, tenant improvement allowances, and other incentives that make the deal attractive. It’s the “bones” of the deal, setting the foundation for the entire transaction.
P = pricing. We look at the asking lease rate or sale price, but also dig into whether there’s room to negotiate below the stated amount. Pricing flexibility can make or break a deal in today’s market.
A = amenities. Our client is prepared to invest significantly in outfitting their new space—installing warehouse racking, security systems, dock equipment, and lighting, to name a few. If a building already has some of these features, it’s a big advantage. Amenities also include the essentials: ceiling height, truck access, trailer parking—all contributing to the overall amenities score.
C = coordinates. Location is everything, and coordinates cover proximity to highways, ports, customers, and suppliers. We also assess access to a reliable labor pool and check how close key employees live. If the site is positioned perfectly, that’s reflected in its score.
E = equity and ownership. This is one aspect that’s often overlooked, but we find it crucial. The stability of ownership impacts everything from lease flexibility and maintenance responsibilities to financial strength and motivation. It’s the “X factor” in the relationship between occupant and owner—the basis for a partnership that lasts.
Next time you’re faced with an overwhelming array of options, try using this SPACE system. It really works!
Allen Buchanan is a principal and commercial real estate broker at Lee & Associates, Orange. He can be reached at 714.564.7104 or abuchanan@lee-associates.com .