Developers are squeezing more industrial space out of the San Gabriel Valley market despite the shortage of large parcels of vacant land.

The industrial vacancy rate in the San Gabriel Valley was the lowest in Los Angeles County at the end of the second quarter, 5.1 percent, down from 6.5 percent in the second quarter of 1996 and 6.8 percent in the first quarter of this year, according to Grubb & Ellis Commercial Real Estate Services.

Tom Taylor, President of The Seeley Co.'s San Gabriel Valley office in Diamond Bar, said the low rate reflects the demand for industrial buildings of all sizes, but especially by tenants looking for "big box" space as well as smaller industrial spaces.

Taylor said Pacific Gulf Properties Inc., a Newport Beach-based real estate investment trust, quickly leased all of a 325,000-square-foot former Bullock's warehouse in the City of Industry to two tenants after buying the building for about $8.75 million last year. The tenants are Metropolitan Concessions, a provider of movie theater concession supplies, and computer products company Max Group Corp.

Steve Bellitti, a Seeley vice president, said Pacific Gulf also plans to build a 57,000-square-foot speculative industrial building on a site adjacent to the former Bullock's warehouse.

While the new building will be considerably smaller than the 100,000-square-foot and larger projects that are in demand by many companies, Bellitti and Taylor said there is increasing demand for smaller spaces.

Taylor said that St. Louis-based General American Life Insurance Co. recently bought two parcels of land totaling 20 acres in Irwindale and Baldwin Park from Ontario-based Mission Land Co. and plans to build 11 speculative industrial buildings on the property.

Taylor said the buildings, which the developer hopes to sell to owner-users, will range in size from 18,000 to 54,000 square feet. Eight of the buildings will be on the Irwindale site and three on the Baldwin Park site, he said.

Tony Manos, a vice president of development with Catellus Development Corp., said demand for industrial space in all sizes has spurred construction of two build-to-suit projects that recently got under way at the company's Catellus Commerce Center in the City of Industry.

The deals include a 109,450-square-foot building that will be a new corporate headquarters for Playhut Inc., a toy manufacturer and distributor, and a 46,630-square-foot building that will serve as a new headquarters for Formosa Tile.

Seeley's Taylor said the demand for new industrial space recently prompted the City of Industry to issue a request for proposals from developers to build approximately 1.5 million square feet of industrial space on 71 acres of city-owned land along Grand Avenue near the Pomona (60) freeway, one of the few remaining undeveloped large parcels of land in the valley, Taylor said.

According to Anthony Brent, a senior vice president with the San Gabriel Valley office of Lee & Associates in the City of Industry, demand for large spaces is such that 12 prospective tenants have already toured a 406,000-square-foot building in the City of Industry that will be available for a new tenant in the fall.

Brent said the building will be available after the current owner-occupant, California Hardware, makes a scheduled move to a new facility in Ontario in October. He said Newport Beach-based TA Associates, a pension fund adviser, is in escrow to buy the building and plans to add another 60,000 to 80,000 square feet of industrial space on the 26-acre property at the San Gabriel Freeway (605) and Temple Avenue.

"The interest in this building is tremendously high because there just isn't any space like this available in the San Gabriel Valley," Brent said.

He explained that the building, constructed in 1985, is one of the few structures that old that have the 30-foot heights and state-of-the-art fire sprinkler systems as well as ample office space in addition to industrial space.

Brent said the building's 406,000 square feet includes approximately 50,000 square feet of office space. He said many tenants today are looking for industrial facilities that include generous amounts of office space.

"They're trying to economize by finding a site that has office and industrial so they don't have to rent separate office space," he said.

Brent said many of the tenants and prospective tenants looking for space in the San Gabriel Valley are coming out of Los Angeles. He said many of them move out to the Inland Empire if they can't find space in the San Gabriel Valley, but quite a number of firms don't want to move that far out because they need to be as close to Los Angeles as possible.

"Companies that are distributing regionally throughout Southern California don't seem to mind going farther out, but some of them are more local distributors who really want to be close to L.A.," he said.

According to Grubb & Ellis Commercial Real Estate Services, the shortage of space is prompting owners of industrial land to place it on the market after holding it throughout the recession.

As examples, he cited a 15-acre site at Buena Vista Street and Bateman Avenue in Irwindale, a 5.2-acre former GAF Corp. Fiberglas plant at Irwindale Avenue and the Foothill Freeway (210) in Irwindale, and a vacant 7.5-acre site at Lomitas Avenue and Valley Avenue in the City of Industry.

Center said the former GAF plant typifies what happened to small, developable parcels of industrial land during the recession.

"GAF shut down the plant and mothballed it a few years ago," he explained. "They just sat on it during the recession, but now that the market is back they figure the time is right to sell."

Center said that although the San Gabriel Valley is a seller's market, more land is for sale than buildings because relatively few owners want to sell their industrial buildings.

"The hard part is not finding buyers, it's finding owner who want to sell," he said.

Center explained that those who own their own buildings don't want to sell, despite the potential profits, because they would still need to locate their businesses elsewhere.

Investors don't generally want to sell because their properties are generating good cash flows that potentially could increase as tenants' leases expire.

"Owners who have leases expiring know they can get higher rents, either from the existing tenant or from new tenants," Center said.

Center predicts that the San Gabriel Valley market is bound to slow down in coming months because so little space is available that there won't be many deals to do.

"We're running out of product," he said.

Major events in the San Gabriel Valley

- Developer Pacific Gulf Properties of Newport Beach leased all 325,000 square feet of a former Bullock's warehouse in the City of Industry after buying the building for approximately $8.75 million last year and remodeling it.

- St. Louis-based General American Life Insurance Co. recently bought two parcels of land totaling 20 acres in Irwindale and Baldwin Park from Ontario-based Mission Land Co. and plans to build 11 speculative industrial buildings on the property.

- Catellus Development Corp. signed two build-to-suit deals totaling 1569,080 square feet of industrial space at its Catellus Commerce Center in the City of Industry.

- T.A. Associates, a Newport Beach-based pension fund adviser, has entered escrow to buy the 406,000-square-foot California Hardware headquarters on a 26-acre site at Temple Avenue and the San Gabriel Freeway (605) in the City of Industry.

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