Transitions!

Tony LoPinto is the Global Sector Leader of Korn/Ferry International’s Real Estate Practice and founder of SelectLeaders.  Tony writes a weekly column for GlobeSt.com called Executive Watch. The below write-up if from his Tuesday, October 4th post and is so good that I thought I would repost it for everyone to see. Enjoy:

I read a quote the other day that resonated with me, and I thought that I would share it for this week’s column. Craig Barrett, the retired CEO of Intel, said in a speech recently, “There is a general rule in business life: Market share is won or lost during transitions.” The quote caused me to reflect that we are once again in a time and at a place that will define our economic future. The lesson learned following the shocks of September 2008, and every severe economic downturn that preceded it, is that those who are not meek of heart and sense an opportunity are able to take market share from and capitalize on businesses that are caught short and do not advance. From an organizational point of view, this is again a time to remove weak performers and recruit top talent. All too often companies address the removal phase, but do not have the vision to go into the market and recruit to build a stronger bench.

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Inland Empire Commercial RE Overview

For my first Blog entry I am reposting an article I wrote for the Inland Valley Daily Bulletin from this time last year. The below article gives an overview of both office and industrial activity in Southern California’s Inland Empire which sits just an hour east of Downtown Los Angles. It is interesting to see how things have changed over the last year. Stay tuned as I will be posting future blog entries about the current state commercial real estate in our region. Enjoy!

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Another Labor Day has passed and the third quarter of 2010 is quickly coming to an end. As such, clients have begun asking me to take stock of what has happened in commercial real estate this year and give them advice on where the Inland Empire is heading so they can better prepare their business plans. I just wish I had a crystal ball…

What I do know though is that the Inland Empire has approximately 495 million square feet of industrial buildings with a current vacancy rate of 10.7%. This is down from a high of 11.9% just twelve months ago, a reduction in available space of over 6 million square feet. Although rates continued to decline over the last year, they appear to have bottomed out and most submarkets have begun to stabilize.

Despite the fact that gains in job growth have been anemic this year, we are seeing transaction volume increase significantly from the previous year and we are beginning to see positive signs.

Some of those signs include existing tenants renewing their leases like Target recently did for a 725,000 square foot warehouse in Ontario and Wal-Mart renewing a 650,000 square foot facility in Mira Loma. Leap Frog Enterprises is also said to have renewed their Fontana location of 410,800 square feet and Kohl’s recently signed a lease to open a 970,075 square foot distribution center in San Bernardino for their E-Commerce division.

Sharp Electronics signed a lease for 468,600 square feet in Rancho Cucamonga, Mars Pet Care signed a lease for 467,853 square feet in Redlands, and integrated logistics company Kuehne & Nagel just signed a lease for 436,650 square feet in Rialto.

The office sector has also seen improvements this year, just not as significant. The approximately 68 million square foot office market has a vacancy rate of approximately 16.3%, down from a high of 17% last year. Like the industrial market, office rents have steadily decreased over the last few years but they too have appeared to stabilize.

Notable office transactions this year include the University of Phoenix renewing for 56,709 square feet and Defense Contract Management Agency signing a lease for 11,027 square feet, both at the Waterside Center in Ontario. Arrowhead Credit Union renewed 53,832 square feet in San Bernardino while CALTROP signed a lease for 47,720 square feet in Rancho Cucamonga.

Although not as fast as we would all like, both the office and industrial sectors are seeing some improvements. So, the question remains… what do I tell my clients?

I am telling them not forget that our region was the hardest hit area in California
and that it may take longer to recover.

I am telling them that I am encouraged by the increased transaction velocity and rent stabilization but concerned about the lack of job growth and the marginal demand in housing which was driving this region.

I am telling them that I am tired of economist sitting behind a desk arguing that commercial real estate is dead in the water when we are seeing lease and sale transactions starting to happen again and vacancy rates dropping.

And last, I am telling a few of them to let go of the paralyzing inability to make a decision… it’s time to pull the trigger on what may be the best bargains this region will see in the next decade.

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