January 2020

Commercial Real Estate Scarcity of Warehouse Space Demands new negotiating skills

Seasoned agents in the commercial real estate brokerage community are now discovering what the residential real estate community has been experiencing for a decade; how to cope in a market with a shortage of warehouse properties available for sale or lease?

In some communities in Southern California inventory of vacant warehouse properties is almost nonexistent. No new construction has taken place in 10 years. The agent working in the suburbs where rents are less expensive are finding that the vacancy rates are sub 3%. This vacancy rate clearly indicates that there is no space for lease or sale.

If an agent is fortunate enough to find space for their client, there is a new way to approach the negotiations. The following steps should be considered prior to drawing up an offer:

  1. Verify with the agent representing the premises if the space is still available. In addition, request if they are anticipating accepting an offer for the space in the near future.
  2. Assume that the asking price is the rate that your client should be prepared to lease or buy the space.
  3. Act fast and make the first offer your best offer. It is certain that there will be competition with other prospects for the space if the building has attractive features.
  4. Try to make the offer simple to accept if the agent representing the property has another prospect for the building.  As a result, limit any free rent, don’t request tenant improvements, and staple a copy of the client’s financial information to the offer.
  5. Make your offer higher than the asking rate if you know that there is an existing offer on the property.    

The above suggestions on how to secure a building for the client may have a negative impact on a prospect. Clients frequently like to negotiate and these tips are placing them in a position to just accept what is offered. The broker’s job is to educate the client and show them how to make a deal in a marketplace where there will not be a second option.

The good news is that it is definitely a seller or landlord’s market. The landlord/seller must be realistic and not aggressively overprice the property. It may be in the owner’s interest to price the property slightly less than the last sale in the area. Sale’s of properties only represent approximately 10% of all properties listed; as a result, properties for sale are more difficult to find. This protocol of listing at less than market may create multiple offers and may exceed the fair market value of the property.

“I was looking for a new business space and needed a real estate broker with a keen understanding of the Los Angeles market. Lee Segal understood what we were looking for and what was important to us; he even took the extra step of anticipating how the situation might serve us in the long run. Thanks to his professional advice, we found the perfect space for the company. I will definitely work with him again if I have real estate needs in Los Angeles.”  
Joachim Wekenmann, General Manager for Weckerle Cosmetics USA