Mid-Cities/25 inches/LK1st/mark2nd

By RACHEL REYNOLDS

Contributing Reporter

Demand significantly outpaced supply during the first quarter in the mostly industrial Mid-Cities market.

"This is the hottest I've seen the market in 10 years," said Clif Fincher, senior vice president of Lee & Associates Commercial Real Estate in Orange. "As soon as a building is built, it's leased. There's action on it immediately."

About 1.2 million square feet of new industrial space was leased or sold in the Mid-Cities during the first quarter of 1998 as several new projects were completed, according to Grubb & Ellis Co.

The Mid-Cities market which encompasses the small, industrial cities of Southeast L.A. County, such as Norwalk, Santa Fe Springs and Cerritos now has 79.89 million square feet of industrial space available. And 2.15 million square feet of new space is under construction.

"That market is ready to explode with buildings," said Don Hirose, senior real estate analyst for CB Commercial Real Estate Group Inc. "There's just an acceleration of demand in the industrial market. The area is ideal for distribution if you want to reach anywhere in Southern California because it's right in the middle."

Still, leasing and sales activity was somewhat tepid compared with the first quarter of 1997, when 5.1 million square feet was occupied or changed hands.

That's not because demand is down, according to brokers, but rather because the availability of land in the area is so limited.

"Basically it's a lack of land," said Chris McGranahan, a principal at McGranahan Carlson & Co., which is developing several large projects in Santa Fe Springs. "What's selling now is recycled property. There's a great desire to be here, but land is hard to get."

The vacancy rate in the Mid-Cities market was 5.8 percent during the first quarter of 1998, down from 6.1 percent in the fourth quarter of 1997 and 6.3 percent for the first quarter of 1997, according to CB Commercial.

"At this point, it looks like developers are moving as quickly as they can to fill demand," said Pat Welsh, senior associate with CB Commercial. "There's a lot queued up here in 1998. Especially with the limited supply of land, everything is pretty well spoken for."

Industrial lease rates in the first quarter reflected that demand, ranging from 42 cents per square foot for warehousing and distribution buildings to 64 cents per square foot for "high-tech" research and development buildings, according to Grubb & Ellis. That compares to a countywide average of 44 cents per square foot for standard industrial buildings and 49 cents per square foot for high-tech space.

Not only are new businesses leasing space in the Mid-Cities area, but existing businesses are expanding into additional space, brokers and developers say.

"As part of the increase in economic activity, existing companies are looking for additional space to expand," said Alan Pyenson, vice president of Transpacific Development Co. "A lot of our existing tenants seem to be growing."

Transpacific is developing a 30,000-square-foot expansion for Delta Dental Plan of California, which already leases 50,000 square feet, in Transpacific's Cerritos Towne Center in Cerritos. That, along with a 50,000-square-foot speculative office building currently under construction at the same site, is expected to be completed in the second quarter, Pyensen said.

Transpacific also is in the midst of finalizing the sale of the Cerritos Towne Center to Menlo Park-based real estate investment trust Spieker Properties, Pyenson said, adding that he expects the transaction to close at the end of April. Pyenson declined to state the value of the deal.

Other notable transactions in the Mid-Cities market included the lease of a 100,080-square-foot distribution building in Santa Fe Springs by Toyota Motor Sales USA. The 10-year deal, handled by CB Commercial on both sides, includes 4.2 acres of land. Proficiency Capital Inc. is the developer.

In another transaction, Marlite, a building products firm, consolidated its Fullerton and La Mirada operations into one facility in Santa Fe Springs when it leased an 80,000-square-foot building for $4.2 million over 10 years. The owner is Marquardt Investment Co.

Premier Packaging leased two buildings for a total of 90,000 square feet at Hunsucker Business Park in Santa Fe Springs for $3 million over 5 and a half years.

Meanwhile, McGranahan Carlson & Co. broke ground on the MC & C; Commerce Center, nine speculative distribution buildings, ranging from 24,000 square feet to 152,000 square feet, on a 26-acre site in Santa Fe Springs. In addition, Davis Partners broke ground on a 90,000-square-foot speculative distribution building on a 4.46-acre site in Santa Fe Springs.

Golden Springs broke ground on a 287,000-square-foot speculative building in Santa Fe Springs a 250-acre project that is expected eventually to have 25 separate buildings. And Fu-Lyons Associates plans to break ground in April on a 12-building speculative industrial project totaling 166,960 square feet in Downey. Construction on the $14 million project is expected to be completed by October.

Some activity, though, was hampered by the El Ni & #324;o rains.

"Unfortunately, it really does slow things down," said Paul Ashworth, principal planner for the city of Santa Fe Springs. "The soil is so super-saturated that one day of rain will puddle up or pool at a building site, so it takes two or three days to dry out."

Despite the weather, Ashworth said, development remains ahead of the city's year-ago projections.

"It just slows the developers down, they can't build in wet dirt. They just keep pushing the completion dates," said CB Commercial's Welsh. "But it's not curbing anyone's appetite."

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