By R.W. GREENE
Contributing Reporter
The Mid-Cities region demonstrated across-the-board strength in the second quarter, with strong demand, falling vacancy rates, rising rental rates, and a pick-up in construction and leasing activity.
“It’s even more heated up than before,” said Cliff Fincher, a senior vice-president at commercial brokerage Lee & Associates. “Demand is by far outpacing supply. The big push is to find sites, to be creative. Everybody’s out here. Most people seem to want three acres or more.”
Mid-Cities a largely industrial area that encompasses the southern L.A. County communities of Cerritos, Downey, La Mirada, Norwalk, Santa Fe Springs and Whittier continues to reap the benefits of a central location. Easy access to the Los Angeles/Long Beach harbor complex and to major highways makes it a prime spot for distribution and warehousing operations.
“The 605 freeway is the center of the universe to distributors distributing to the greater L.A. area,” said David Bayle, an industrial broker with Cushman & Wakefield of California. “If I’m a distributor, I have immediate access to the L.A. County market, the Orange County market and I’m still pretty close to the ports.”
Two commercial brokerages, CB Richard Ellis Inc. and Grubb & Ellis Co., pegged the Mid-Cities’ second-quarter industrial vacancy rate at 5.1 percent, although both firms define the Mid-Cities market to include a few communities across the border in Orange County.
That second-quarter vacancy compared with the first-quarter figure of 6 percent. A year ago the rate was at 5.4 percent.
Some of the market’s larger cities fared best during the second quarter. La Mirada, for instance, saw its industrial vacancy plummet from 8.1 percent in the first quarter to 3.3 percent in the second. In Cerritos, the rate dropped from 5 percent to 4.4 percent. The rate in Santa Fe Springs fell from 7.1 to 6.2.
Those rates are all lower than the 6.5 percent vacancy for the entire Los Angeles industrial market.
Bayle attributed some of the current strength to pent-up demand related to El Ni & #324;o. “Somebody calls you and says, ‘Do you have a building?’ Yeah, but we haven’t broken ground and we’re waiting for the rain to stop, and it may be May. They say, ‘Oh, I’m gonna go look elsewhere.’ So now we’ve got a lot of activity,” he said.
That activity includes a wave of speculative development, much of which will hit the market between now and the end of the year.
Lance Parker, a broker with Grubb & Ellis, sounded a note of caution. “While overall demand is increasing for space, we may be overbuilding the marketplace,” he said. “One section of the market that no one is accommodating is the smaller 10,000- to 70,000-square-foot user. There is absolutely no product for sale in that category.”
Sales and leasing activity for the area was pegged at 2.3 million square feet in the second quarter, way up from 1.7 million in the first quarter and 1.4 million in the year-earlier quarter, according to CB Richard Ellis.
Such demand is fueling a rise in monthly lease rates, which are now averaging above 40 cents per square foot for warehouse-distribution buildings larger than 100,000 square feet.
“Those have now broken the barrier for our historic highs reached in the late ’80s,” said Bayle. “So we have rebounded and advanced.”
One lease in the second quarter went for 52 cents per square foot. “That represents the highest per-square-foot rental rate we’ve seen for distribution-warehouse space that is not heavily improved,” Parker said. “Rents have been going up so much that it’s to a point now where you could justify demolishing an older structure and putting up a newer one and achieving a higher rental rate.”
That has occurred at the 265-acre Golden Springs Distribution Center in Santa Fe Springs, site of a defunct oil refinery and tank farm, and where Golden Springs Development Co. is constructing a 287,000-square-foot building. About half of that was leased in the second quarter for distribution and warehousing for a garden and pet supply company, said Parker and Bayle.
Similarly, the O’Donnell Group demolished a metal manufacturing building at a site on Sorensen Avenue in Santa Fe Springs, and began construction of a 200,000-square-foot speculative building. In Downey, Fu-Lyons Associates broke ground in May on a 12-building, 166,960-square-foot industrial park. That project, situated on an 8.84-acre site on Firestone Boulevard, is set to be completed in December. The buildings will be for sale or lease.
In Cerritos, CommonWealth Pacific reached agreement with the city to build a seven-story headquarters facility for L.A. Cellular, at the southeast corner of the Cerritos Towne Center, a retail and entertainment complex. That agreement also calls for a five-story parking structure. That project is scheduled to begin construction this month.
