Demand for industrial space in the Mid Cities remained strong through the first quarter, though several significant projects coming on line caused vacancies in the tight market to bump up slightly.
Although brokers predicted the available space to increase in the coming months, as more projects are completed and the economy slows, vacancies are not expected to climb much higher than the 5.7 percent recorded in the first quarter. The vacancy rate at the end of 2000 stood at 5.4 percent.
In a market of 89.2 million square feet, 5.1 million feet are available, with the average monthly asking rental rate holding firm at 50 cents per square foot, a penny more than the price during the first quarter of 2000.
“Market conditions are still strong but transactions appear to be down a little bit from the beginning of the year,” said Steve Sprenger, an associate vice president at Grubb & Ellis Co. “I expect that the vacancy rate is going to climb just a little bit more during the second quarter, and then I have a sense that business is going to remain status quo over the next quarter or two.”
Despite such predictions of further softening, several Mid-Cities projects have broken ground over the past few months and several others are expected to be completed within a year. Much of that coming space has already been pre-leased.
Of the vacant space available for lease, much of it is in smaller buildings those with between 10,000 and 30,000 square feet of space. A primary reason for that is tenants occupying such space have lately preferred to buy their buildings, rather than lease them. That’s because many such business owners can qualify for Small Business Administrations loans, Sprenger said.
“The SBA loans are favorable to buyers for properties priced at $2 million and below, allowing an individual buyer to acquire a property with a 10-percent down payment, as compared to a conventional loan, necessitating a 25 to 30 percent down payment,” he said. “Ownership allows you to control your own destiny.”
But while smaller for-lease spaces are not seeing much demand, the larger industrial spaces are being absorbed at a steady clip.
The 547,000-square-foot Heritage Springs Business Park in Santa Fe Springs was already 75 percent pre-leased or pre-sold by the time developer Trammel Crow Co. completed construction in January.
And negotiations are currently underway with a tenant interested in leasing the entire 101,000-square-foot distribution warehouse being developed “on spec” in Santa Fe Springs by Lutzky Associates Development, according to CB Richard Ellis, which is marketing the building. The project is expected to be completed this summer.
The largest project under construction in the Mid-Cities area is the Golden Springs Business Center in Santa Fe Springs, a 265-acre, 5 million-square-foot primarily industrial project at the former site of the Golden West refinery. Developer Golden Springs Development Co. has projected build-out costs to reach $200 million by the time the project is completed within the next three years.
During the first quarter, Maintenance Warehouse, a division of Home Depot, leased 106,000 square feet of space and McCulloch Corp., an importer and distributor of chainsaws, leased 58,000 square feet, in deals brokered by Colliers Seeley International. Clyde Stauff, a senior vice president at Colliers Seeley, said his office is close to brokering a 531,000-square-foot lease to an unspecified tenant.
On the construction front, Rosetta Development of Gardena broke ground in early April on the $13 million Mission Business Centre, a seven-building, 195,000-square-foot project in Santa Fe Springs. That project is being built on the 10.5-acre site where the Mission Clay Co. for years manufactured clay pipe. The project, scheduled for completion in late October, is being marketed by Lee & Associates Inc. and Collins Commercial Inc., which do not anticipate any problems finding tenants for the space.
That seems likely considering the fact that Santa Fe Springs has an industrial vacancy rate of less than 1 percent for buildings with 30-foot minimum ceiling height, and more than half of the square footage in the project fits that description.
“Everyone wants to be in the Mid-Cities market,” said Clif Fincher, an agent with Lee & Associates. “It is the link between both the Long Beach and L.A. ports, as well as the city of Los Angeles and Orange County. It’s got five major freeways. It’s one of the main warehousing, manufacturing and distribution hubs in Southern California.”
Overton Moore & Associates Inc. of Gardena is developing the 1.36 million-square-foot CommerceCentre at Buena Park. The company is scheduled to complete the project in early 2002. Rooney Daschbach, a senior vice president with Overton Moore, said the company has already signed leases for 225,000 square feet of pre-existing refrigerated buildings currently under renovation on the site.
