Space for E-commerce

In the past few weeks, California Lutheran University Professor Kirk Lesh witnessed something strange. The economics professor in the college’s School of Management in Thousand Oaks said his parents ordered groceries online. That is something millennials and younger adults — not senior citizens — are supposed to do, but it is anecdotal evidence, he said, that consumers of all generations are shifting their habits during the lockdown. “Even people like myself, who have resisted, I’m starting to do this stuff,” said Lesh, who began utilizing Uber Eats for no-fuss meals. “The longer this goes on, the more comfortable we’re going to get with more of it.” As Lesh and others see it, the coronavirus situation has become an accelerant for a transition to e-commerce that was already happening pre-pandemic. And the biggest beneficiary in the Valley region is Amazon.com Inc. Multiple brokers confirmed that Amazon will occupy 700,000 square feet at buildings I-1 through I-4 at the freshly built 60-acre Avion Burbank business park. It signifies the latest manifestation of the quiet growth in Amazon’s local footprint. Industrial strength Brick-and-mortar retail has flatlined, companies are dropping office leases, and multifamily has become mired in landlord/tenant issues over delayed rent arrangements during the crisis. However, e-commerce continues to thrive, fed by a large infrastructure at business parks across the Valley region. The online buying evolution was inevitable, said Newmark Knight Frank Executive Managing Director John DeGrinis, who, with colleagues Patrick DuRoss and Jeff Abraham, has brokered several major transactions related to e-commerce’s expansion in the region. According to DeGrinis, Amazon has steadily increased its presence in the San Fernando, Conejo and Santa Clarita valleys, as well as in Ventura County. In 2018, 11 percent of all retail purchases happened online, and Amazon represented 40 percent of that slice. In the last two months, he continued, online purchasing has exceeded 50 percent, and Amazon dominates a whopping 39 percent of that market share. The volume of product moved by Amazon has been enormous and, as a result, complicated. Amazon Spokesperson Keri Bertolino told the Business Journal that, during the virus crisis, the company has prioritized shipping household items, such as hand sanitizers, over, for example, graphic novels and compact discs — which is not to say that Amazon is not delivering entertainment purchases, she stressed. “’Non-essential (items) will take a bit longer – a few days more than say, textbooks for schools,” she said. The Burbank Avion development by Overton Moore Properties is just the latest instance of Amazon aggressively asserting its prominence in the San Fernando Valley, DeGrinis explained. In Chatsworth, the company occupies a large industrial building. In Simi Valley, Amazon is looking at a variety of sites. In Camarillo, the city is in the process in leasing out a Mission Oaks Properties lot for last-mile fulfillment. Amazon is looking at some land on the Oxnard Plain. At IAC Commerce Center in Valencia, Amazon is carving out a 155,000-square-foot distribution site plus 16 acres, presumably for Prime truck circulation and parking. A couple years ago, Amazon had 127,000 square feet in the region, DeGrinis said. By the end of 2021, the company will have 3 million to 4 million square feet in the market. “They’re making a big re-entry in the North L.A. market,” DeGrinis said. “We’ve experienced a bit of a slowdown since the virus with transactions on hold. (But) Amazon is still moving forward. They will continue during the slowdown.” Small e-tailing Amazon is not the only company grappling with e-commerce growth in the Valley. Homegrown operations, from search engine optimizers to medium businesses, are also finding ways to capitalize on the online shopping trend. Operating from Warner Center for nearly six years, Feedonomics Inc. specializes in helping brands get products listed on search engines such as Google, Yahoo and Bing, as well as on major online retail platforms such as Amazon and Walmart.com. Certain companies, such as computer giants Hewlett-Packard and Dell, had relied heavily on selling their products through stores such as Best Buy. Before the pandemic, such companies may have avoided Amazon and Walmart, perhaps perceived as “lower-end shoppers (that may) tarnish their brands,” said Feedonomics Co-Founder Brian Roizen. “Suddenly, they’ve had to switch (strategies) and they need to do really, really well (via Amazon and Walmart),” he added. E-commerce has grown over the years, but the crisis will shift it into a higher gear. As a result of the crisis, “I’ve become 10 times more reliant on Amazon,” Roizen told the Business Journal. Online fashion retailer Naked Wardrobe has thrived in the seven years since its founding, but suddenly, its manufacturing has stopped at its 14,458-square-foot Northridge facility, located at 19855 Nordhoff St. Shideh Kaviani, who — along with sisters Shirin and Shida Kaviani — founded and runs Naked Wardrobe, said that her company was categorized as nonessential. “We did stop all authorizations,” she told the Business Journal. “We’re at a complete halt.” That said, the Kaviani sisters have been working around the situation. “We’re still an online business,” Shideh Kaviani said. “We’re still accepting orders.” Additionally, “we can manufacture because China is up and running,” she said, noting that she manufactures her products both locally and in Asia. There have been no layoffs at Naked Wardrobe of the company’s 25 employees, but 10 have been furloughed as their duties were rendered obsolete after the stay-at-home orders. “We are still accepting imports,” Shideh Kaviani said. “There’s the issue having your team is in place here to accept the goods. I don’t want to put our team in harm’s way.” She and her partners have applied for a Small Business Administration loan as part of the federal CARES Act assistance program. However, at press time, Naked Wardrobe had yet to hear back. Bumps in road Essentials e-commerce continues to thrive, even as entertainment, last year’s big industrial real estate story with some 530 television shows in production in 2019 — including at soundstages and converted warehouses across the valleys — shrank to insignificance with the outbreak. Yet DeGrinis expects content production to re-emerge as an industrial real estate heavyweight once the pandemic is over. “There will be a great demand for content once we get back to work,” he said. “We’re going to see a huge resurgence of activity in the entertainment world.” If there is any sector of industrial that runs a risk of diminishing, it is the middle realm of industry — the 10,000- to 30,000-square-foot range at the multitenant business parks — according to DeGrinis. “The one area where we’re especially worried about is sole proprietorship in a business park,” the industrial realtor said. “We may not see those people come back. We are heavily populated with small business. They’re not big corporations, they’re mom-and-pops.” And despite Amazon thriving in the viral economy, it has not been a smooth Prime delivery ride for the company. In late March, officials in Thousand Oaks scrutinized Amazon’s fleet of delivery vans on local roadways after local residents complained about traffic congestion. Acrimony revolved around a bottleneck of vehicles trying to enter Rexford Industrial-owned Conejo Spectrum Business Park in Newbury Park — where Amazon established a presence in 2018 when it transformed a 55,000-square-foot warehouse at 2405 Conejo Spectrum St. into an Amazon Prime distribution center. According to Thousand Oaks Code Compliance Manager Geoff Ware, who led an investigation of Amazon’s driving practices since the first complaint was filed in October, the backup has worsened in the past few months “with the numeric value and types of traffic patterns involved with the Amazon location. … It was just an overload of vehicles trying to access the site.” Amazon’s warehouse is positioned at the northernmost end of Conejo Spectrum St. where it intersects with Rancho Conejo Boulevard and shares a business campus with biotech company Atara Biotherapeutics and academic publisher Sage Publishing. “There was some concern about vehicle trailers being unhooked in the public right of way, which would be a municipal code violation,” Ware said. “There may have been some vehicle code issues regarding vehicles making particular types of movements because of the added traffic.” Ware added that the city of Thousand Oaks has discussed the issue with Amazon, which “has been receptive to altering some of their methodology.” Particularly, “they have changed some of their patterns of loading and unloading which has relieved some of that congestion. We have seen some improvement.” Even before the pandemic, DeGrinis, DuRoss and Abraham had transacted numerous warehouse deals that have helped advance the e-commerce narrative north of the 101 freeway. During their decade at their former brokerage, Colliers International, Team DeGrinis worked leases at Tejon Ranch Commerce Center and Sun Valley Business Center. The latter 255,528-square-foot industrial site indirectly involved Amazon. In June 2018, DeGrinis and his colleagues celebrated the opening of the Sun Valley facility. The two-building Sun Valley Business Center at Sun Valley Business Center at 11051 Pendleton St. — a joint venture between urban infill warehouse developer Xebec Realty Partners and Barings Real Estate Advisers — became operational in January 2018 as OnTrac — a logistics company specializing in contract shipping services — signed a 10-year lease to occupy the site. DeGrinis, DuRoss and Abraham represented Xebec and Barings, as well as OnTrac with fellow Colliers brokers John Kovaleski and David Buchholz from the Silicon Valley office, Triniti Commercial Real Estate of Los Angeles’ George Stavaris and Colette Ramirez represented the landlords. OnTrac immediately began serving business-to-business clients including Amazon.com Inc. The Sun Valley location allowed OnTrac — and by extension Amazon — to serve the northern Los Angeles-area. From there, OnTrac shipped to points anchored at its outer limits in Santa Clarita Valley, Lancaster and Palmdale in the Antelope Valley to the north; Pasadena to the east; and West Hollywood to the south. Additionally, the site is strategically located near Hollywood Burbank Airport. According to DeGrinis, Amazon’s growing presence, especially with the incoming Avion lease, may diminish its reliance on OnTrac. Yet DeGrinis does not worry about OnTrac’s future. “There certainly is enough e-commerce (business) for everyone,”’ DeGrinis said. Other commercial sectors stepping up their online delivery during the pandemic are grocers Vons and Albertson’s, following the lead of Amazon-acquired Whole Foods. “North L.A. is a big market,” DeGrinis said, and from the pandemic period, DeGrinis reckoned, “habits will continue to evolve; people are getting a lot more comfortable ordering online.” Brave new world? After stay-at-home orders have lifted, some normalcy will return, but not right away, according to Cal Lutheran’s Lesh. Eventually, he predicts, people will start going back to the malls and movie theaters. Post-pandemic, he believes there will be a hunger, so to speak, to seek out restaurants and retail centers. But “the longer this thing goes on, some of these businesses aren’t going to make it,” he cautioned. Roizen agreed with Lesh that the commercial landscape is going to change, and that COVID-19 has forced the issue. “It’s accelerating what will probably happen anyway,” Roizen said, expecting many industries to be rewritten by the lockdown’s end. Naked Wardrobe’s Kaviani remains optimistic that some good will come out of this real-time learning experiment. “I anticipate us coming out of this stronger,” Kaviani said. “It’s going to shine once it’s all said and done.”