In the aftermath of the pandemic, industrial lease negotiations entered uncharted territory.
But unlike the Great Recession, this period saw a surge — not a collapse — in rental rates, particularly in Class A logistics warehouses throughout Southern California. Rents doubled, in some cases even tripled, driven by soaring demand, constrained supply and e-commerce acceleration.
That upward trajectory has since leveled off, and now we’re seeing a return to more normalized leasing conditions. However, rental rates have not yet subsided to pre-pandemic levels.
Many in the industry expect downward pressure to continue throughout 2025, especially in markets with rising vacancy and macroeconomic uncertainty.
As this shift unfolds, landlords and tenants alike are revisiting an old but effective strategy: the blend and extend.
For those unfamiliar, a blend and extend is a lease modification that resets the rental rate — usually blending the remaining term’s rate with a new, often lower rate — in exchange for an extension of the lease term. It’s a win-win, in theory: tenants secure near-term relief, and landlords gain longer-term income stability.
During the early 2010s, this strategy was a go-to for owners and occupants after the Great Recession. But in recent years, it fell out of favor as rising market rents and tight industrial vacancy rates made lease concessions less necessary.
Now, with shifting market dynamics — especially here in Southern California — the blend and extend may be poised for a comeback.
Here’s what makes this moment unique:
— Tariff uncertainty is rattling supply chains. Many importers and logistics companies operating near the ports of Los Angeles and Long Beach are reevaluating their long-term space needs in the face of potential cost increases. Locking in a lower rent through a blend-and-extend gives them breathing room while global trade policies shake out.
— Tenants are more cost-conscious than ever, and many are considering downsizing or relocating. A landlord who offers a reasonable blend-and-extend may retain a tenant who otherwise might leave.
— Landlords face longer lease-up times, particularly in softening sectors like Class A logistics space. Extending a current tenant — even at a major discount — may be preferable to enduring months of vacancy.
— Lenders like stability. A longer lease term improves the property’s valuation and supports refinancing conversations.
However, not all spaces or situations qualify. Blend-and-extends work best when:
— The tenant is stable and has a solid track record of payment.
— The current rent is above market or nearing expiration.
— The landlord wants to avoid the risk (and cost) of vacancy and re-tenanting.
Owners and occupants alike should revisit lease portfolios and look for opportunities where both sides might benefit. In 2025, creativity and collaboration will again be the keys to unlocking deals, and the blend-and-extend might just be the versatile tool needed.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at [email protected] or 714.564.7104.
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