Southern California Industrial Real Estate: Demand Drivers Persist Despite Cooling

While Southern California's industrial real estate market has cooled somewhat over the past 18-24 months, the region remains an attractive hotbed driven by powerful economic forces. Fueled by the area's enduring status as a logistics hub and massive consumer market, the Greater Los Angeles and Inland Empire continue to see healthy appetite for warehouses, distribution centers and manufacturing facilities. Understanding the key demand drivers propelling this industrial powerhouse is crucial for capitalizing on opportunities through market cycles.

Massive Consumer Base
With over 23 million residents, Southern California's population across Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties forms an immense consumer market with tremendous spending power. Retailers, e-commerce firms, logistics providers, and others maintain distribution nodes feeding this dense region. Fast delivery expectations further buoy demand for strategically located facilities.

Pacific Rim Gateway
The Ports of Los Angeles and Long Beach handle 40% of U.S. inbound container traffic yearly - over 17 million units. As the nation's leading maritime gateways for trans-Pacific trade, these ports create consistent demand for industrial properties like distribution centers, transload terminals, and rail-served sites.

Diverse Industrial Base
The region's industrial ecosystem extends beyond logistics into manufacturing sectors like electric vehicles and aerospace. Major OEMs and suppliers like Tesla, SpaceX, Lockheed Martin, and others maintain operations and supply chains requiring proximate facilities for lean manufacturing and inventory management.

Infill Redevelopment Potential
With limited land availability, Southern California municipalities increasingly rezone outdated commercial/industrial areas for new, state-of-the-art logistics facilities and manufacturing plants. This unlocks infill redevelopment opportunities in prime locations along major freight corridors.

Infrastructure Improvements
Public and private capital continues funding infrastructure upgrades to enhance regional goods movement. Highway projects, Metrolink's rail modernization, new mega fulfillment centers, and expanded intermodal yards generate additional industrial property needs.
While recent market headwinds have tempered demand, Southern California's status as a consumer and trade hub ensures the industrial sector's enduring strength. As fundamentals evolve, staying attuned to key drivers allows investors and users to capitalize.

Sizing Up Industrial Assets: Key Metrics and Trends for Analysis

When evaluating industrial real estate deals, informed investment requires a multifaceted analysis. Here are key metrics and trends for assessing risk, return potential, and market alignment.

Crunching the Numbers
- Rental rates - Assess against market averages and growth trajectories. Factor in concessions.
- Vacancy rates - How do they compare to submarket and metro area benchmarks?
- Net operating income - Critical for capitalization rate analysis. Scrutinize expenses.
- Tenant profile - Credit quality, lease terms, rollover schedule. Red flags?

Location Drivers
- Labor pool - Proximity to skilled talent key for occupancy. Analyze demographics.
- Transportation infrastructure:  Access to highways, rail, air and port facilities a must.
- Supply chain shifts - Emerging logistics routes influence leasing demand.
- Incentives - Tax breaks or development grants can impact returns.

Property Condition
- Building age and maintenance needs - Major capex ahead? Evaluate carefully.  
- Configuration - Clear heights, truck courts, loading docks adequate?
- Expansion potential - Available excess land for additions? Limitations or challenges in modifying/expanding the existing structure?
- Sustainability - Energy efficiency scores impact costs.

Market Trends
- Absorption and deliveries - High quantity of new construction signals caution.
- Rent growth - Accelerating or stagnating? Markets peak and cool.
- Investment activity - High transaction volume flags strong investor demand.
- Tenant preferences - Modernization needs driven by occupant expectations.

Shrewd industrial investment requires digging into data from all angles. Analyzing key metrics and trends provides the clarity needed to size up risk, returns, and growth potential ahead. Information is power when navigating deals. Do your homework.

From Worn-Out to Wow: Revitalizing Industrial Spaces

Once left for dead, many dormant industrial properties are now thriving urban meccas. Through creative reimagining, these sites have been reborn as vibrant community spaces and engines of innovation. Take a look at what can happen when vision meets opportunity.

The High Line in New York City turned an abandoned elevated railway into a world-famous linear park. This innovative adaptive reuse catalyzed massive growth and investment in the surrounding Chelsea neighborhood.  

In Los Angeles, the former Pabst Blue Ribbon Brewery is now the lively Brewery Arts Complex. By attracting artists, galleries, and creative businesses, this historic industrial site catalyzed cultural renewal.

San Antonio’s shuttered Pearl Brewery was repositioned into a mixed-use district with dining, shopping, residences, and attractions. The Pearl has become a crown jewel, spurring downtown revitalization.

Philadelphia Navy Yard went from naval shipyard to sustainable business campus. This massive property now houses tech firms, research centers, and green spaces, creating jobs and opportunity.

Brooklyn Navy Yard transformed its naval legacy into a manufacturing and creative hub. Adaptive reuse maintained its heritage while driving employment and innovation.

The potential is stunning when industrial sites get a fresh coat of vision. As these cases show, reinventing old structures as cutting-edge spaces can profoundly uplift communities. Beyond economic benefits, they enrich culture, bring people together, and catalyze urban regeneration. With the right blueprint, worn-out can become wow.

Industrial Real Estate: A Whole New Ball Game

Remember the days when warehouses were just... warehouses? A lot's changed since then. Over the years, the way we look at industrial spaces has undergone a massive makeover, thanks to tech booms, our ever-growing online shopping patterns, and a world that's increasingly eco-conscious. Let's dive into what's been shaking things up.

The Online Shopping Frenzy:
Raise your hand if you've ordered something online in the past week. Yep, thought so. Our collective love of online shopping is like that massive tidal wave in disaster movies—powerful and unstoppable. Developers noticed and had to scramble. Now, instead of old-school storage spaces, there are supercharged distribution hubs, packed with cutting-edge tech, ready to get our latest splurge to our doorstep ASAP.

Tech: Not Just For The Nerds:
Just a few years ago, robots and AI were sci-fi movie stuff. Now, they're at the heart of modern industrial real estate. Those massive structures aren't just storing products; they're buzzing with drones, AI-driven systems, and self-driving vehicles. If developers aren't tech-savvy these days, they're missing the boat.

Being Green Isn't Just for Kermit:
Our planet's health is on everyone's minds, particularly as we experience increasingly frequent severe weather events and prolonged heat waves across the world.  So, industrial buildings aren't just 'buildings' anymore. They've got solar panels, wind turbines, and even gardens on rooftops. Developers have truly taken the "reduce, reuse, recycle" mantra to heart.

Big City Life and The Space Crunch:
Have you ever tried finding a parking spot downtown during rush hour? It's the same with finding space for new warehouses. Developers are getting crafty, thinking vertically, and literally taking things to the next level with multi-story warehouses. It's about making the most of what we've got.

Keeping Things Flexible:
In an ever-changing world, adaptability is the name of the game. Industrial spaces now have the flexibility of a yoga instructor. Need to reconfigure space for a new product line or fancy tech? No worries. Modern designs are all about bending and flexing to meet business needs.

Location, Location... Talent?
Back in the day, you built where land was cheap. Now? It's all about being close to where the talent hangs out. Developers are eyeing spots near universities and training hubs. After all, a business is only as good as its people.

Strong and Sturdy.
COVID-19, among other events, was a wake-up call. Developers are now all about strengthening those supply chains and redundancy. Think of it as having a backup plan for your backup plan. It's all about ensuring businesses can weather any storm.

Conclusion:
Industrial real estate? It's not what it used to be. Whether it's tech, green initiatives, or the sheer need to adapt and overcome, this space is evolving at breakneck speed. Consequently, industrial developers need to learn, adapt, and look forward to what the future holds. Here's to creating spaces that aren't just functional but are also a nod to the future we all envision.

What Should You Know Before Investing in Industrial Real Estate?

Modern Distribution Space Is What’s In Demand:

• Modern, quality distribution space is in high demand in the industrial property sector.

• The distribution and fulfillment space has experienced the fastest rent growth.

• General distribution space is a relatively safe bet for first-time industrial investors.

• An Industrial Asset’s Location Is Paramount:

  • The location of an industrial property is crucial for its success.

  • Proximity and easy access to major transportation corridors are important.

  • Industrial research labs and specialized buildings have high demand but may be more expensive to invest in.

• Which Interior Features of Industrial Buildings Are the Most Important?:

  • Clear heights are essential for distribution centers.

  • Clear heights determine the amount of inventory that can be stored.

  • Loading docks are critical for loading and unloading products.

  • The configuration and setup of loading docks are important.

  • Column spacing affects the efficiency of operations in distribution and logistics buildings.

• Most Important Exterior Considerations for Industrial Investing:

  • Truck courts are crucial for distribution operations.

  • Proximity to major transportation corridors benefits operations and tenant demand.

• Truck Courts and their Importance:

  • Truck Courts are the area adjacent to a building's loading docks that consists of the loading and truck maneuvering areas.

  • Truck courts play a crucial role in logistics distribution properties as they can impact the efficiency and safety of operations.

  • The standard depth of a truck court is around 120 feet, but newer properties often have larger truck courts.

• Trailer Parking in Logistics Centers:

  • Trailer parking is an important consideration for major logistics centers to accommodate heavy traffic.

  • Investments in assets with secured truck courts or trailer parking can be beneficial.

• Repositioning Opportunities for Industrial Investments:

  • Repositioning a dated industrial facility can yield high returns and be a valuable investment strategy.

  • Buying a Class B asset at a lower price point and improving it can lead to significant returns.

• Key Considerations when Investing in Industrial Real Estate:

  • Location, access to transportation, and proximity to major terminals and transportation hubs are important factors to consider.

  • Setting realistic assumptions expectations is crucial for success in industrial real estate investments.

• Advantages of Investing in Industrial Real Estate:

  • Investing in industrial real estate can offer strong returns and repositioning opportunities.

  • Tax benefits, such as accelerated depreciation, can further enhance the advantages.

• Risks Associated with Investing in Industrial Real Estate:

  • Tenant default, longer lease terms, and slower leasing velocity are common risks.

  • Value-add opportunities may be necessary to maximize returns on industrial real estate investments.

The Austin Real Estate Market: High Growth with Unique Opportunities and Challenges

As a tech hub with a dynamic cultural scene and high quality of life, Austin’s vibrant growth and thriving economy provide ample opportunities for investors. However, it's important to acknowledge the unique challenges that come with such a fast-paced market. Today, we'll explore opportunities and challenges in the Austin market.

Austin's strong job market and economic growth are major attractions for real estate investors. Home to big corporate names like Dell, IBM, and Apple, and Tesla, and new corporate relocations announced every few days, Austin continues to draw a steady stream of skilled professionals & consistently ranks at or near the top of highest growth cities in the US. The subsequent demand for housing offers good opportunities for real estate developers and investors.

The city's cultural magnetism and lifestyle amenities further fuel its real estate potential. Known for its music scene, arts community, and an array of outdoor activities, Austin has something for everyone. The high appeal of neighborhoods like South Congress, East Austin, and Zilker add to the desirability of real estate investments in these spots.

Despite these opportunities, the Austin real estate market also has particular challenges. A key concern is the rising affordability crisis. As the city's population booms, the demand-supply gap in housing widens, pushing up prices. This growing gap poses difficulties for low-income residents and challenges for investors to strike a balance between capitalizing on market growth and contributing to affordable housing solutions.

The city's rapid growth has also exerted pressure on its infrastructure and transportation systems. Traffic congestion impacts commute times and overall quality of life. As the city moves to improve infrastructure, expanding highways and public transit, investors need to factor in these developments when choosing investment locations.

Next, like any market, Austin's real estate landscape is subject to larger forces such as economic trends, changes in market conditions, interest rates, and regulations. Staying updated on these factors and adopting a long-term investment outlook can help navigate potential downturns and mitigate risk. Additionally, the high investor demand for this market pushes up pricing, leading to investors tempted to stretch their rent growth and other financial assumptions in order to win deals. 

Austin's real estate market, with its blend of opportunities and challenges, offers a compelling landscape for investors. Its strong economic foundation, cultural appeal, and population growth are attractive. However, issues like housing affordability, infrastructure challenges and regulations and high investor demand require a deep understanding and strategic decision-making.

Decoding the Success of Nordic Realty Partners' Investment Track Record

We at Nordic Realty Partners understand the importance of a successful investment track record and have worked very hard to achieve ours over the past decade. Our accomplishments are directly attributable to our commitment to comprehensive market research, active asset management, proactive risk management, and a deeply held value for transparency in investor relations.

The process of selecting the right markets for investment is a task we do not take lightly. We focus on areas that demonstrate strong economic and demographic growth. This strategic approach provides a solid basis for investment opportunities and paves the way for tailwinds and potential success.

Our proficiency is not just limited to market selection. We actively manage our assets with the belief that many inefficiencies in commercial real estate can be improved upon. Strategic renovations and operational efficiencies are just some ways we work to enhance a property's profitability.

Risk management is another area where we focus our efforts. Inherent in any business operation, including real estate investing, are risks. At Nordic Realty Partners, we mitigate these potential challenges through a meticulous due diligence process. We aim to understand fully each asset's strengths and weaknesses, the current market phase, and appropriate capital structuring. This careful approach helps us prepare for any potential market downturns or volatility.

We take great pride in our commitment to transparency and strong investor relations. We understand the significance of clear, timely communication with our clients. By keeping our investors well-informed, we enable them to make confident decisions.

The success of Nordic Realty Partners reflects our effective approach to real estate investing. Our track record underscores our diligence and capability to navigate the intricate landscape of the commercial real estate market.

If you are interested in learning more about our impressive track record, including specific case studies, or considering becoming an investor, we invite you to reach out to us at Nordic Realty Partners. Our team is eager to provide you with the information you need and guide you through your investment journey. When you choose to invest with Nordic Realty Partners, you can be confident that your investment is being managed by experienced professionals.

Office Industrial Development

Nordic Realty Partners made a strategic investment in January 2018 by acquiring an office building located at 13303 Washington Avenue from an affiliate of Johnson Bank. Situated on Hwy 20, near I-94, this property held great potential due to its prime location at the premier intersection in Racine County and its immediate adjacency to the 156,000 SF industrial building leased by Foxconn in Mt. Pleasant Business Park. With these favorable factors in mind, Nordic Realty Partners saw an opportunity to capitalize on the growing demand in the area as a result of robust economic growth, corporate relocations, and the recently announced Foxconn manufacturing campus.

At the time of acquisition, 13303 Washington Avenue consisted of a versatile 10,430 SF office/retail building along with surplus land spanning 3.1 acres. Nordic Realty Partners recognized that the excess land was not essential for their investment strategy and promptly decided to sell it. This allowed them to focus on optimizing the existing building to maximize its potential as a multi-tenant investment property.

Shortly after acquiring the property, Nordic Realty Partners initiated an asset repositioning strategy, subdividing and converting the property from a single-tenant to a multi-tenant property. This pivot was designed to diversify the income stream and expand the tenant base, thereby reinforcing the property's financial resilience and market appeal.

The transformation process was carried out efficiently, and by August 2018, the property was fully leased,highlighting the strength of the location, the efficacy of Nordic's leasing efforts, and the property's appeal to a diverse range of tenants. This tenant diversification further de-risked the asset and elevated its attractiveness to potential future investors.

In January 2020, riding on the crest of strong demand for commercial properties in the region, Nordic Realty Partners made a strategic exit. The sale validated Nordic's investment approach and realized significant returns, demonstrating the value of their disciplined, value-add real estate investment strategy.

The sale of 13303 Washington Avenue marked a significant achievement for Nordic Realty Partners, as they were able to execute a well-planned investment strategy. Their decision to acquire the property in a promising location, capitalize on the proximity to the Foxconn manufacturing campus, and optimize the existing building by subdividing it into a multi-tenant space proved to be a successful endeavor.

Nordic Realty Partners' ability to identify market trends, leverage their knowledge of the local area, and make strategic decisions allowed them to unlock the full potential of the property. Their swift action in selling the excess land and creating a multi-tenant space ensured a high return on investment and attracted a diverse range of tenants.

Overall, the purchase, subdivision, and subsequent sale of 13303 Washington Avenue demonstrated Nordic Realty Partners' strategic insight, disciplined execution, and value creation capabilities. This successful investment not only generated significant returns for Nordic Realty Partners but also contributed to the economic growth and development of Southeastern Wisconsin.