Speculative construction has been percolating in the Mid-Cities industrial sector for several months, and now that "spec" activity is expanding into the market's office sector.
Transpacific Development Co., developer of the 125-acre Cerritos Towne Center in Cerritos, broke ground July 1 on a 50,000-square-foot speculative office building that will join four existing office buildings at the business park.
Thomas Irish, president of Transpacific, said the existing 385,000 square feet of space in those four buildings is 99 percent leased and has been for some time.
In addition, Transpacific plans to break ground soon on a 30,000-square-foot expansion to the existing 50,000-square-foot regional headquarters of Delta Dental Plan of Southern California and has prospective tenants expressing interest in having two other build-to-suit office projects built. Those two projects would total 350,000 square feet.
Transpacific's project is the first speculative office construction the Mid-Cities market has seen in several years. But while new-office construction is sparse, industrial activity in the Mid-Cities market has been extensive.
The new industrial buildings, both speculative and build-to-suit, are making the Mid-Cities "by far one of the hottest markets in Southern California," said Tony Manos, a vice president of development for Catellus Development Corp.
The Mid-Cities market, also known as the Mid-Counties market, includes the Los Angeles County cities of Santa Fe Springs, Paramount, Bellflower, Whittier, Norwalk, La Mirada, Artesia, Downey and Cerritos, along with the Orange County cities of Cypress, Los Alamitos and La Palma.
Manos said Catellus has focused mainly on build-to-suit projects in the Mid-Cities, but he noted that it also plans to develop a spec industrial building in Santa Fe Springs. The speculative industrial projects of other Mid-Cities developers "have almost been like build-to-suits because they're usually leased before they're finished," he pointed out.
One such project was recently completed by developer Western Realco on Greenstone Avenue in Santa Fe Springs, according to Laird Perkins, a vice president with CB Commercial Real Estate Group Inc.
Perkins said that with the recent lease of 105,270 square feet to Distribution Dynamics, the 215,420-square-foot building is fully leased about two months after being finished. Perkins said the remainder of the building was leased late in the first quarter to Redline Medical Supply.
"The Class A, so-called big box industrial buildings are in high demand and most of them are being leased before or close to the end of construction," Perkins said.
Catellus' speculative project is designed to be a 120,000-square-foot building in its 36-acre Pacific Springs industrial park at Sorensen Avenue and Slauson Avenue, where the company has built about 530,000 square feet of build-to-suit projects since 1991 and has entitlements to add another 220,000 square feet.
Those entitlements are for the speculative industrial building and a 100,000-square-foot build-to-suit the company is now negotiating, Manos said.
Catellus recently broke ground on another Mid-Cities build-to-suit project, a 239,000-square-foot manufacturing and distribution center at the company's Desman Road Partners industrial park, an 81-acre development in La Mirada.
Manos said the tenant will be Champion/Nationwide, a maker of paper products, which has agreed to buy the building after construction is finished in November. Catellus is building that project in a partnership with Ford Motor Land Development Corp.
Manos said companies are moving to the Mid-Cities market because of its convenient access to both the L.A. and Orange County markets and the modern industrial buildings being constructed there.
"The projects being built today are nothing like the buildings of even 10 years ago," said Manos, who explained that tenants today want higher ceilings, state-of-the-art fire sprinkler systems, more loading bays for trucks, and other amenities that make the newer buildings more desirable. The new buildings enable tenants to stack merchandise higher, thus squeezing more inventory into the same square footage, he said.
"A 170,000-square-foot building today is roughly equivalent to a 220,000-square-foot building of a few years ago," Manos said. "Tenants are starting to think more in terms of cubic feet than square feet."
According to Perkins, industrial rents are edging up slightly and now range from about 37 to 42 cents, triple net, for the best space. "It's a very competitive market, and we're starting to see multiple offers on good space," he said.
Perkins added that the Mid-Cities market is drawing increased interest from investors. "There's a lot of investment capital looking for quality industrial projects right now. Anything available gets multiple offers," he said.
Among the recent deals was the purchase of the six-building Colonnade II industrial park in Santa Fe Springs for $17.28 million by Prentiss Properties Trust, a Dallas-based real estate investment trust.
Despite the strong demand, Manos said the Mid-Cities is not strictly a landlords' market where developers can dictate lease terms.
"There is a lot of competition from other places," he said. "In the deals that we are competing for today, tenants will look everywhere from Ontario and Fontana to Mid-Counties to the South Bay."
Mid-Cities Major Events
Transpacific Development Co. broke ground July 1 on a 50,000-square-foot speculative office building at Cerritos Towne Center, a 125-acre project south of the Artesia (91) Freeway between the 605 and the 5 freeways.
Construction was completed on Mid Counties Business Park, a 510,000-square-foot project in Santa Fe Springs developed by Pasadena-based Wohl Properties Group.
Catellus Development Corp. signed a deal to develop a build-to-suit project for Champion/Nationwide Papers, which will buy the 239,000-square-foot manufacturing and distribution center upon its completion. The project is being developed at Catellus' Desman Road Partners industrial park, an 81-acre development on Desman Road at Alondra Boulevard in La Mirada.
Prentiss Properties Trust, a publicly held REIT based in Dallas, bought six industrial buildings known as the Colonnade II industrial park in Santa Fe Springs for $17.28 million
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