Balancing Macro and Micro Metrics

In our last two discussions, we explored the opportunities and challenges presented by today’s market conditions.

For now, momentum favors tenants as rising vacancies push landlords—who long held the upper hand—to offer more flexible lease terms and enhanced concession packages. On the flip side, buyers are encountering headwinds. Mortgage rates have more than doubled in the past two years, yet pricing remains persistently high, creating a tough equation for owner/users looking to acquire industrial properties. While sellers are still in a relatively strong position, rising mortgage rates have thinned the active buyer pool, finally applying downward pressure on pricing.

No doubt, macroeconomic forces are playing a significant role in shaping these conditions. A turbulent election cycle and uneven economic performance have put the market under a caution flag. Mortgage rates, closely tied to U.S. Treasury yields, along with rising labor and material costs driven by inflation, are unavoidable realities. Whether purchasing a building in Phoenix, Arizona, or Anaheim, California, a 6.5% SBA loan is a major factor in the buying decision. Likewise, federal regulations tied to specific property uses add another layer of complexity.

Yet, macro factors are only one side of the coin. There’s a reason the saying “real estate is a local business” has stood the test of time. We can confidently say that this remains true today. Pricing, zoning, location, building quality, size, configuration, and local supply and demand dynamics all carry significant weight in the decision-making process for industrial real estate. This means investors and tenants must assess local and property-specific metrics alongside broader economic indicators like inflation, regulation and borrowing costs.

A closer look at market metrics by size range and submarket illustrates the importance of this localized approach. In 2024, the countywide vacancy rate climbed from 2.57% to 5.09%. However, vacancy rates varied dramatically by building size: properties under 10,000 square feet had just a 2.2% vacancy rate, while those between 100,000 and 200,000 square feet saw vacancy rates soar to 9.46%, with nearly eight times the total vacant space. Similarly, the Irvine Spectrum and Brea submarkets—despite being similar in scale—ended the year with vacancy rates of 2.2% and nearly 5.4%, respectively.

This disparity highlights a critical takeaway: relying on broad countywide metrics without drilling down into specific submarkets and size ranges can lead to a distorted view of market conditions. A tenant basing their strategy on general vacancy rates could miss significant negotiating leverage. For example, if a tenant seeking 15,000 square feet in Anaheim finds 12 available buildings in that range, all sitting on the market for over three months, they are likely in a strong position to negotiate favorable terms. Conversely, if only two buildings are available and both are fresh to the market with active interest, the competitive landscape shifts dramatically.

Does this seem a bit obvious? Perhaps. Yet, we frequently encounter market participants who form opinions on “the state of the market” based on a broad, surface-level analysis. Our role is to guide clients in zooming in on the finer details, ensuring they make informed, data-driven decisions. After all, what value does an overall vacancy rate offer if none of the available space meets your size requirements or preferred location? The same holds true for pricing, whether buying or leasing.

We pride ourselves on balancing both macro and micro perspectives, helping clients gather and interpret the data needed for well-informed real estate decisions. Each submarket has its own characteristics, and every size range comes with distinct challenges and opportunities. The right building is out there, but it takes a keen eye and some heavy lifting to secure it on terms that best support your business goals.