Industrial Insights

Negative Net Absorption and Lease Renewals


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This year's So Cal industrial theme is negative net absorption and lease renewals. What does this mean in the marketplace? Lots of impasses in negotiation. Slower velocity. Deals are still getting done, though! Class A lease rates are holding on by a thread. Great credit is worth an 8-10% discount on rates for many projects. Class B landlords are doing their best to secure new deals and tenant renewals. Signing new tenants increasingly means going for a shorter term, like 3-4 years. A shorter term gives you occupancy, cash flow now, and the soonest mark-to-market opportunity possible when the market stabilizes. Tenants are increasingly trying to delay and decrease rates, of course. 1/2 of tenants are willing to let their property go to market to roll the dice on negotiating lower rates, while the other half talks a good game but still cannot risk their property going to market and the chance of having to move. Moving now is cash out of pocket today. A new higher rental rate is cash out of pocket month by month. Your business's cash flow position will usually dictate the answer to the question. It was fun to play host and have Grant La Bounty expand upon what tenants are experiencing and Chris Vassilian stepping into the shoes of the landlords.

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Industrial InsightsBy Justin Smith

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