TRENDS BEHIND THE MARKET STATISTICS
By David A. Prior, SIOR
We are guiding our corporate clients to begin facility and relocation searches sooner than otherwise might be considered normal in earlier years. The Klabin Company and our competitor colleagues all agree that vacancy rates are near 10-year lows, and supply continues to be outstripped by demand of quality of industrial facilities, particularly in high value infill markets like Culver City, Torrance and many other cities that surround Los Angeles International Airport.
Why? I believe there are two separate but powerful forces at work. First is the political power of cities like Hawthorne and El Segundo to ban certain truck related uses from relocating within their city limits. Market conditions usually dictate values and use. These cases of political influence have reduced the overall base of industrial buildings in the marketplace by imposing political restrictions of use.
The second and more market driven trend is the conversion of industrially zoned properties, both land and building, to higher value uses. This is clearly market forces at work. In all of the Greater West Los Angeles area (Marina Del Rey, Culver City, West Los Angeles and Santa Monica) a substantial portion of the industrial base is being converted to commercial office and “creative space”. We are undertaking a study to be released next year on the influence of this contraction of the inventory of industrial properties. In the Torrance market there has been a significant reduction in the base of industrial property to retail use. All cities are looking for sales tax revenues from the Auto Nations and Eagle Hardwares of the world to enhance their financial health.
So, what’s the point? The combination of a very healthy economy that creates robust leasing and sales activity, and a substantially reduced base of industrial property are a one two punch that have created the tight market conditions we have today.
For the reasons discussed above, don’t put off planning an eventual relocation or expansion. It’s better to be a little early in the facility relocation process and having choices than to be forced to lease or purchase a less than ideal building as a result of poor planning in these tight market conditions we face in today’s industrial real estate marketplace.
David A. Prior, SIOR, is President of the Klabin Company.
