Strong demand for top-of-the-line industrial space in the Mid-Cities market has not escaped the notice of institutional investors and real estate investment trusts, which became active buyers of such properties during the third quarter.
That activity continued this month with New York-based Lend Lease Real Estate Investments’ $33 million acquisition of the 23-acre MC & C; Commerce Center in Santa Fe Springs. The seller on that deal, believed to be one of the largest industrial real estate transactions ever to occur in the Mid-Cities market, was a partnership of McGranahan Carlson & Co. and Fortis Advisors Inc.
“Institutional investors have become much more focused on the primary markets, such as Los Angeles, New York and Dallas,” said Steve Batcheller, senior vice president with CB Richard Ellis Inc. and one of the brokers who handled the sale of the MC & C; Commerce Center. “There is a perception that property in these markets is easier to resell should they want to. And among the primary markets, industrial property in Los Angeles is the No. 1 choice.”
A key factor that has made industrial facilities so hot among tenants and investors is the rapid growth of imports coming through the ports of L.A. and Long Beach. Although a huge chunk of incoming containers are shipped directly to distribution centers in the Inland Empire, a growing number are processed in the Mid-Cities, particularly merchandise destined for the local market.
As long as import volume continues to increase, there will be plenty of demand for facilities where arriving goods can be repacked and redistributed.
So it’s little wonder that the Mid-Cities remained one of the healthiest local industrial markets in the third quarter, even though the vacancy rate inched up to 5.5 percent from 5.0 percent in the second quarter, according to Grubb & Ellis Co.
“Most of the vacancy is older and smaller spaces for which there is less demand,” said Jim McFadden, vice president with Grubb & Ellis. “And the uptick in vacancy is basically a function of new supply coming on-line this past quarter.”
Meanwhile, the average asking monthly lease rate held steady at 51 cents per square foot from the previous quarter and is considerably up from the third quarter of 1999, when it stood at 44 cents a foot. Hence, there is not much concern about market conditions softening any time soon.
Further allaying any such concerns is the fact that the average asking monthly lease rate in the adjacent South Bay market is 56 cents per square foot. That makes the Mid-Cities an attractive alternative for businesses in search of large, state-of-the-art warehouse and distribution facilities.
Evidence of strong demand can be seen at the Mid-Cities’ largest industrial project, the Golden Springs Business Center at the site of the former Golden West refinery in Santa Fe Springs.
“The market has stabilized a little, but we’re on track to lease as much space this year as we did last year at Golden Springs,” said Steve Calhoun, senior vice president with Colliers Seeley, who represents the landlord on the project. “We expect to lease between 750,000 and 1 million square feet by the end of the year.”
One 306,000-square-foot speculative building is close to completion, and a 225,000-square-foot structure is about to get started at the business center, which when fully developed will total 5 million square feet of industrial space.
The success of Golden Springs and the shortage of available land for additional new development has put a premium on unused industrial sites that can be redeveloped. Trammell Crow Co. is developing the Heritage Springs Business Park, a 10-building, 550,000-square-foot industrial park at the site of a former Unocal facility in Santa Fe Springs.
