Praw turned the discussion to e-commerce, which, he said, is projected to be a $4-trillion business by 2020. Marchiorlatti said he is seeing not so much e-commerce tenants, but industrial tenants who are starting to handle e-commerce out of their current buildings. “Big trucks come in, and small trucks go out.”

Praw asked what the panelists were doing to tackle the last-mile-delivery challenge, and Severson said he is seeing a different distribution of industrial space than in the past. Instead of occupying a million-square-foot building in the Inland Empire, users are occupying an 800,000-square-foot building there and a 75,000-square-foot building in Orange County to handle last-mile delivery. “The last mile is more hand-picked merchandise in a central location.”

Berg said, “We tend to focus on real estate as part of last-mile delivery, but real estate is only 20% of overall cost” for these companies.

Praw asked how prevalent multi-story industrial is in Orange County, and Berg said we won't see this soon. “You see this a lot in Asia, where land is even more constrained than in Southern California. You could see it in Downtown L.A., where these buildings already exist. But for last mile, it's not cost-effective and too novel” for Orange County.

The panelists were split on whether industrial improves as retail declines. Marchiorlatti said, “Retail is going toward experiential uses, but I don't see the trend of industrial improving because of that.” But Finnegan said, “Retail, to some degree, is going to industrial—the square footage is going from retail to industrial, so I think there is more of an inverse relationship.”

The panelists discussed what Amazon acquiring Whole Foods does for industrial and agreed that food delivery would be the next big wave in e-commerce, although delivering hot food to people using this model is difficult because of the timeliness factor. “It's better to go out and buy” a food business with existing retail locations, said Berg. “The point of the Whole Foods purchase is for customers to be able to order their groceries and have them within a day. I've ordered groceries at work and then tried to beat the delivery guy home.”

In discussing conversion of industrial space to creative office, Severson said, “We did two of them—one in the Irvine Spectrum an electric-car company bought before we could start swinging hammers, and another we're doing on Redhill. Creative office is putting a dent in industrial stock.” Berg agreed that these conversions take some industrial stock off the table, which is a problem. Marchiorlatti says to avoid this, his firm makes sure the space is zoned for industrial before it goes for a site.

The panelists agreed that no companies want to associate themselves with the cannabis industry, so this is a non-starter. “It's a smaller-deal-size business, and reputable firms don't want to have their names attached to it,” said Severson.

Praw asked the candidates what we'll be discussing at a panel a year from now, and Finnegan said the food-delivery business as part of e-commerce. Marchiorlatti said one topic will be the vacancy factor and whether the market is still sustaining itself without absorption. Berg commented, “We will be in a very good spot. E-commerce growth and the need for space will continue, but ai don't see a decrease in cap rates. Lease rates will rise.”

Severson said, “Twelve months is a short period of time; not much will change. Rent growth may be an issue, along with lack of supply and food delivery.”

Marchiorlatti added that environmental issues will continue to be big as brownfield sites become less-intimidating options for developers. Berg said the challenge with this will be getting through remediation with the time hurdles, “but brownfield sites are becoming more acceptable.”

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COSTA MESA—With near-0% vacancy across the county and no available land leading to very little construction, the market is getting creative about maintaining its ability to deliver to tenants seeking space, RealShare Orange County panelists said here last Thursday. Speakers on the panel “Industrial Market: New Opportunities for Orange County” pointed out that industrial demand is strong here, but the market has a different tenant base than Los Angeles and the Inland Empire.

Moderator Douglas Praw, a partner with Holland & Knight, said the US industrial sector has enjoyed 28 quarters of growth and asked the panelists for their take on the current state of industrial in Orange County. Joseph Finnegan, executive director—real estate investing for Morgan Stanley, said industrial vacancy rates are sub-2% across the county, and cap rates are very low. Mike Severson, EVP and chief acquisitions officer for Bixby Land Co., said there's no land in Orange County, which has led to very little construction, and Jon Marchiorlatti, VP of industrial development for Shea Properties, said his firm's properties “feel better than what's on the market”—the class-B and -C properties. “They see the quality, and we can push the rents.” He added that his firm's properties in Carlsbad and Orange County have leased up well.

In discussing amenities, Marc Berg, VP and regional director of Rockefeller Group, said amenities in Orange County—which is more focused on smaller, last-mile-delivery buildings—are different than those in the Inland Empire, which can run greater than 500,000 square feet in size. “Bigger buildings are about circulation and employee amenities. When you have a few thousand employees in a building, you need more employee-sensitive amenities.” He added that a dearth of properties is a problem in Orange County.

Severson said because the Orange County industrial buildings have a different size and purpose than in L.A. and the Inland Empire, they attract a different tenant base.

Praw turned the discussion to e-commerce, which, he said, is projected to be a $4-trillion business by 2020. Marchiorlatti said he is seeing not so much e-commerce tenants, but industrial tenants who are starting to handle e-commerce out of their current buildings. “Big trucks come in, and small trucks go out.”

Praw asked what the panelists were doing to tackle the last-mile-delivery challenge, and Severson said he is seeing a different distribution of industrial space than in the past. Instead of occupying a million-square-foot building in the Inland Empire, users are occupying an 800,000-square-foot building there and a 75,000-square-foot building in Orange County to handle last-mile delivery. “The last mile is more hand-picked merchandise in a central location.”

Berg said, “We tend to focus on real estate as part of last-mile delivery, but real estate is only 20% of overall cost” for these companies.

Praw asked how prevalent multi-story industrial is in Orange County, and Berg said we won't see this soon. “You see this a lot in Asia, where land is even more constrained than in Southern California. You could see it in Downtown L.A., where these buildings already exist. But for last mile, it's not cost-effective and too novel” for Orange County.

The panelists were split on whether industrial improves as retail declines. Marchiorlatti said, “Retail is going toward experiential uses, but I don't see the trend of industrial improving because of that.” But Finnegan said, “Retail, to some degree, is going to industrial—the square footage is going from retail to industrial, so I think there is more of an inverse relationship.”

The panelists discussed what Amazon acquiring Whole Foods does for industrial and agreed that food delivery would be the next big wave in e-commerce, although delivering hot food to people using this model is difficult because of the timeliness factor. “It's better to go out and buy” a food business with existing retail locations, said Berg. “The point of the Whole Foods purchase is for customers to be able to order their groceries and have them within a day. I've ordered groceries at work and then tried to beat the delivery guy home.”

In discussing conversion of industrial space to creative office, Severson said, “We did two of them—one in the Irvine Spectrum an electric-car company bought before we could start swinging hammers, and another we're doing on Redhill. Creative office is putting a dent in industrial stock.” Berg agreed that these conversions take some industrial stock off the table, which is a problem. Marchiorlatti says to avoid this, his firm makes sure the space is zoned for industrial before it goes for a site.

The panelists agreed that no companies want to associate themselves with the cannabis industry, so this is a non-starter. “It's a smaller-deal-size business, and reputable firms don't want to have their names attached to it,” said Severson.

Praw asked the candidates what we'll be discussing at a panel a year from now, and Finnegan said the food-delivery business as part of e-commerce. Marchiorlatti said one topic will be the vacancy factor and whether the market is still sustaining itself without absorption. Berg commented, “We will be in a very good spot. E-commerce growth and the need for space will continue, but ai don't see a decrease in cap rates. Lease rates will rise.”

Severson said, “Twelve months is a short period of time; not much will change. Rent growth may be an issue, along with lack of supply and food delivery.”

Marchiorlatti added that environmental issues will continue to be big as brownfield sites become less-intimidating options for developers. Berg said the challenge with this will be getting through remediation with the time hurdles, “but brownfield sites are becoming more acceptable.”