Activity in the San Gabriel Valley’s tightening industrial market slowed significantly during the first quarter of 2006, with most of last year’s construction already absorbed.

Sales and leases fell by more than half last quarter, to 665,814 square feet at the end of the January-March period, compared with 1.55 million square feet during the fourth quarter of 2005, according to Grubb & Ellis Co.

“There just aren’t very many buildings available,” said Tom Taylor, senior vice president, Colliers Seeley International. “There’s not a lot of product to transact deals on. That’s going to be one of the biggest challenges going forward the very, very tight market.”

The first quarter of 2006 saw just over 472,279 square feet of industrial space absorbed in the region, slightly less than the 475,420 square feet absorbed in the prior three-month period, and down from 973,080 square feet absorbed during the first quarter of 2005.

New construction slowed dramatically, due in part to the completion last year of the 1.6 million-square-foot industrial park, Gateway Pointe, in Whittier. Only 305,000 square feet of new industrial space was under construction at the end of 2006’s first quarter, as compared with 1.9 million square feet during the same period last year.

While 4 million square feet of Majestic Realty’s Grand Crossing development in Industry is already finished, Majestic has just broken ground on a new building in the development, according to Kent Valley, senior vice president with Majestic. The 550,000-square-foot Building 25 is slated to come on line in about a year. When the entire project is completed, Grand Crossing will total 6.4 million square feet, the majority of which will be industrial space. Last month Home Depot Supply moved into its new 650,000-square-foot, pre-leased facility there, said Valley.

Industrial vacancy rates were up to 1.9 percent, as compared to 1.6 percent in the fourth quarter of 2005. The uptick can most likely be attributed to approximately 672,000 square feet of available space at Gateway Pointe. Based on the project’s track record, it should not have a problem filling up the remaining space.

“Both Gateway Pointe and Grand Crossing have done extremely well in the type of tenants they have been able to attract and how quickly they were able to do so,” said Jason Chao, senior associate, brokerage services with CB Richard Ellis.

Sellers pushing


On the sales side, $100-per-square-foot asking prices were previously limited to buildings under 50,000 square feet. Over the past few quarters, according to Chao, large-box facilities of 100,000 square feet and up are going for more than $100 a square foot now.

“Demand for the larger buildings continues to be there and sellers continue to push the envelope and see what they can sell their assets for,” he said.

But even when businesses can afford the increased prices, they may have no choice but to look elsewhere.

“A lot of people from the San Gabriel Valley have now bought buildings down in Chino,” said Taylor. “More and more of users are being forced toward the lnland Empire due to a general lack of availability.”

In response to the San Gabriel Valley’s current squeeze and the lack of parcels available for development, Taylor believes the region is going to follow in the footsteps of other tight markets like Commerce and Vernon.

“You’re going to see more recycled product hit the market, in which buildings are purchased and either repositioned, or torn down to create new product that meets today’s needs,” he said. “That’s typical of infill markets.”

Office space


In the region’s office market, vacancies climbed more than half a point to 10 percent last quarter, while Class A and B rents rose a penny each, to $2.21 and $1.97 respectively.

Among office transactions last quarter, Earl Investment Corp. leased 7,905 square feet of Class B space in Monrovia for five years.

While no office buildings are currently under construction, some smaller industrial tenants are looking for office space within warehouse and distribution facilities.

“(They’re) setting up shop to serve not only as their distribution facility but also as their Western or U.S. headquarters, where all employees are housed,” said Chao. “Landlords and tenants have slowly added offices to fill the void for the changing type of company that’s occupying a building. It’s definitely a trend.”