Port Activity Drives Down Industrial Vacancies

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The continued brisk port business drove vacancy in industrial space in the Mid-Cities area to a new low for the year. However, the average third-quarter asking rent also dropped.


But realtors working in the area said they aren’t concerned. They believe the main reason for the drop is that mostly older, lower-priced properties were leased because they are the most abundant in the nearing-capacity market. Mid-Cities realtors say lease and sales prices are on the increase for older properties too.


The industrial region, which comprises Santa Fe Springs, La Mirada, Buena Park, Cerritos, Norwalk and Downey, had a third-quarter vacancy rate of 2.2 percent down from last quarter’s 2.4 percent and way down from 3.4 percent in the third quarter last year. This quarter’s average asking rent is 55 cents a square foot, down from 59 cents the previous quarter but up from 47 cents in the same quarter last year, according to Grubb & Ellis Co.


“It’s the lack of supply,” said Rick McGeagh, senior vice president at CB Richard Ellis Group Inc.


Despite the average, asking lease and sales prices are still high for what little Class A property is left. Class A facilities are typically defined as industrial spaces less than 20 years old that have what are called ESFR (early suppression, fast response) sprinkler systems and 30-foot ceiling clearance. Class B facilities are generally spaces built before 1990 and Class C facilities were mostly built before 1975. Class B and C typically have lower ceilings and older sprinkler systems.


ESFR sprinkler systems enable distributors to stack goods higher. If distributors don’t have the newest sprinkler system, they may be unable to stack merchandise higher than 12 feet. A 30-foot ceiling clearance is of little use to a distributor who can’t use the vertical space because of fire codes.


“ESFR is extremely important to a lot of tenants,” said Steve Calhoun, senior vice president of Colliers International in the City of Commerce office.


“Right now there’s very little Class A space (in Mid-Cities) and if you can’t find that kind of space you’re going to head out to Chino or Ontario or even farther east.”


Solaris Paper Inc. pre-leased a 200,068 square foot building in the Golden Springs Business Center in Santa Fe Springs. The lease was the largest industrial lease of the quarter for the region, according to McGeagh. Golden Springs was able to lease the building, which is still under construction, for more than 65 cents per square foot. With its four leases in the quarter, Golden Springs eclipsed its former 60-cents-per-square-foot plateau.


Other major activity in the region in the third quarter: Los Angeles County acquired 99,494 square feet at 12680 Corral Place in Santa Fe Springs for about $11 million, and Jamestone Furniture Inc. and Royal Pacific Mattress (both have the same owner) leased 115,808 square feet at 14715 Industry Circle in La Mirada from Berns & Sanderson LP. The terms of the lease are 39 cents per square foot for the first three months, 51 cents per square foot for nine months, and an increase of 3 percent for each following year of the 10-year contract.

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