Voit's Industrial Market Reports

Review the California real estate market’s performance in the first quarter of 2019 with Voit Real Estate Services’s indispensable Q1 2019 market reports.

The first quarter of 2019 was uneventful in terms of the key metrics generally used to measure conditions in the industrial market.

Orange County and the Mid-Counties markets remain short on supply and long on demand, which continues to frustrate those business owners who are looking to relocate to accommodate growth or improve operational efficiency. With vacancy in both regions stuck at historic lows, finding any vacant space is trouble enough let alone identifying high-quality, functional buildings.

As a result of that shortage, lease rates and sale prices continue to move further north and landlords remain steadfast in their efforts to keep concessions like free rent and improvements to a minimum. That said, we see business owners becoming more discerning in their choices, which has left some less functional properties on the market a bit longer.

Conversely, higher quality spaces are often leased before they become vacant, and that has led to problems getting into spaces on time. Most leases grant the landlord a two to four month grace period to deliver possession without penalty. Such delays can be very expensive for tenants, especially those who have ordered new machinery or equipment purchased under a firm delivery schedule.

Perhaps the most significant event of the quarter is the fact that mortgage interest rates failed to rise as most experts have been predicting. The yield on the 10-Year US Treasury note, the benchmark for setting commercial property mortgage rates, fell sharply in Q1 after hitting a multi-year high late in the final quarter of 2018.

That decline can be attributed to lower long term expectations for domestic growth and a general global economic slowdown. In response, the US Federal Reserve Bank changed course on two important fronts. First, it put the brakes on moving its Fed Funds Rate higher in 2019, and second, it announced plans to halt the shrinking of its bond holdings that swelled its balance sheet to over $4 trillion.

While a global slowdown is not necessarily great news, it’s good news for local borrowers, who can still acquire industrial real estate with low down payments and borrow long term in the mid-4% range. As long as that is the case, we expect the market to track closely on its current path for the balance of the year.