The industrial real estate market in the Mid-Cities area remains red hot, with vacancy rates dropping considerably even though 2 million square feet of newly built space has hit the market since the beginning of the year.

Industrial vacancy in the second quarter stood at 4.1 percent, down from 4.6 percent in the first quarter, according to Cushman & Wakefield Inc. Meanwhile, direct rental rates averaged 43 cents per square foot in the second quarter, compared with 44 cents in the first.

"I definitely expect that there will be further upward pressure on lease rates," said Steve Calhoun, senior vice president with Seeley Co. "There are no signs of weakness in the market, and demand, especially for big buildings, is very strong."

Located between downtown Los Angeles and Orange County and close both to the harbors and the airport, the Mid-Cities region is a prime location for distribution and warehouse operations. In particular, Santa Fe Springs has been a hotbed of new development, adding 2.8 million square feet of state-of-the-art distribution facilities in the last 12 months.

The largest project in Santa Fe Springs is the Golden Springs Business Park, on the site of the former Thrifty Oil refinery. Phase II of Golden Springs is under construction and will consist of three buildings with a total of 812,019 square feet of new space.

"We currently have four transactions (in the project) in process," said Calhoun, who represents the developers, Golden Springs Development Co. "If we close these deals, all the existing space will be leased and we will not have any additional new space available until November."

The two other major new industrial developments in Santa Fe Springs, the MC & C; Commerce Center and the Pacific Distribution Center, were both almost completely leased during the second quarter.

In the largest industrial deal of the quarter, Stephen Batcheller, first vice president with CB Richard Ellis Inc., leased the entire 355,590-square-foot Pacific Distribution Center to Performance Team Freight Systems, which provides distribution and transportation services for major retailers, including Neiman-Marcus and Saks Fifth Avenue. Batcheller would not disclose financial terms of the 10-year deal.

The distribution center was built by Pacific Theaters Realty Corp. on the site of a former drive-in theater. The shortage of available land in the Mid-Cities and the demand for new, class-A industrial space has made it economically attractive to redevelop existing sites, such as drive-in theaters and oil refineries, into industrial facilities.

Another parcel of land that may soon be used for new industrial construction is a 19-acre site in La Mirada that is owned by Chevron USA Inc.

Batcheller, who represents Chevron in the sale of the site, said there is a lot of interest from developers and end users. The parcel will go on the market in August.

"There is not that much land available, while the demand for new construction is tremendous," said Batcheller. "There is a lot less interest in older, class-B and C industrial space."

Meanwhile, Trammell Crow Co. is in escrow on a 30-acre site in Santa Fe Springs from Unocal Corp. This site, named Heritage Springs Business Park, is slated for high-end industrial development. This means that the business park will be aimed at smaller, entrepreneurial businesses that combine manufacturing, distribution, and office operations under one roof, according to Trammell Crow Vice President Tim Howard.

The business park will encompass 10 buildings with a total of 545,000 square feet of available space. Construction is slated to start Oct. 1.

Among other industrial deals in the quarter, Phillips Industries Inc. signed a 10-year lease on a 130,000-square-foot speculative development by Catellus Development Corp. in Santa Fe Springs. Cal Pac LLC leased 200,000 square feet in Santa Fe Springs.

While the office market in the Mid-Cities is marginal compared with industrial, it, too, is showing some strength.

In Cerritos, the area's main submarket, the vacancy rate for class-A space fell to 8.3 percent in the second quarter, from 14.1 percent in the first three months, and overall office vacancy fell from 11.8 percent to 7.8 percent.

Major office deals took place at the Cerritos Corporate Center, a new project developed by Commonwealth Partners. AT & T; Wireless is scheduled to move into the first phase, a 225,000-square-foot building, next month. Meanwhile, Commonwealth is talking with prospective tenants for the 100,000-square-foot second phase of the center.

Major Events

? Performance Team Freight Systems leased the entire 356,000-square-foot Pacific Distribution building in Santa Fe Springs in a 10-year deal.

? Phillips Industries Inc. leased a 130,000-square-foot speculative development by Catellus Development Corp. in Santa Fe Springs.

? Abbey Co., based in Garden Grove, acquired a five-story building in the City of Commerce from John Hancock for $7 million.

? Western Union Corp. leased 39,000 square feet in a 10-year lease valued at $6.5 million at Cerritos Corporate Tower.

? Cal Pac LLC leased 200,000 square foot property. The seven-year deal was valued at $7 million.

? Electronics manufacturer Airey-Thompson & Co. leased 77,663 square feet of industrial space at 5206 Bickett St. in Vernon.

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