Surging Imports Drive Warehouse Demand

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Surging imports from Asia continued to fuel demand for warehouse space in the South Bay, pushing industrial vacancy rates to their lowest level in more than a decade.


The demand for large warehouses near the ports of Los Angeles and Long Beach has created a tough situation for freight and logistics companies. Many companies need large warehouses to store and label consumer goods, and they also need vacant land to park trailers. Real estate brokers say the limited supply means that current demand can’t be met.


The South Bay’s industrial vacancy rate fell to 2.2 percent, flat with a year ago and down slightly from 2.5 percent in the first quarter, according to Grubb & Ellis Co. Asking rents have jumped to 65 cents per square foot, up from 59 cents in the second quarter a year ago.


“This market is extremely tight,” said Don Smith, senior vice president and principal of the Lee & Associates South Bay office. Smith, who has been working in the area for more than 20 years, said the vacancy rate is at its lowest point since the late 1980s. “Some of these tenants are looking for 200,000 square feet of space and I can tell you, what they want doesn’t exist in this marketplace.”


The South Bay’s office market appears to be showing some improvement but still earns the dubious distinction of having the highest vacancy rates in Los Angeles County.


“The South Bay has had slow but steady absorption,” said Bill Bloodgood, senior vice president at CB Richard Ellis. “It has not exploded like some of the other markets but we’re definitely making progress.”


Office vacancies in the second quarter fell to 16 percent, flat compared with 16.1 percent in the first quarter, but down from 20.1 percent a year ago, according to Grubb & Ellis. Several submarkets showed signs of improvement including El Segundo, 190th Street Corridor, Torrance and both the downtown and suburban markets in Long Beach. The Carson submarket appears to be struggling with a vacancy rate of 17.4 percent, up from 10.1 percent in the same period last year.


The area includes downtrodden office buildings on Century Boulevard near the Los Angeles International Airport and in the 190th Street Corridor. The South Bay office market has long been considered a last resort because of its cheap rents and less-than-stellar properties. The area managed to attract a number of dot.com companies several years ago, but that renaissance ended when the speculator bubble burst.


“The South Bay is a more mature market that is still suffering from the demise of the aerospace industry,” said Greg Gil, senior managing director at Charles Dunn Co.’s Long Beach office. “It has never really recovered the entrepreneurial spirit of the startups.”


The biggest signing in the second quarter was Herbalife International’s 10-year, $10.7 million lease for 40,000 square feet in Arden Realty’s Pacific Gateway II at 19191 S. Vermont Ave. in Los Angeles.


Mutual fund manager Capital Group Cos. signed an 88,000-square-foot lease at 403 McDonnell Douglas Drive.


Several brokers said they are still surprised that office buildings and land values continue to rise as much as 20 percent because of demand for space.

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