Industrial, Office Markets Buck Economic Downturn

By LAURENCE DARMIENTO
Staff Reporter

It's hard to tell there's a recession judging by the amount of industrial and office space available for rent in the San Gabriel Valley.

The vacancy rate in the 156.9-million-square-foot industrial market fell to 3.5 percent in the fourth quarter the third straight quarter it's been down since rising early in the year, and the lowest vacancy rate in the county outside of Central L.A., according to Grubb & Ellis Co.

Ditto for the 9.1 million-square-foot office market, where the vacancy rate dropped to 12.4 percent in the fourth quarter. Though it followed a jump to 14.8 percent in the third quarter, the current rate is even lower than it was prior to the tech bust in March 2000.

So what's going on here?

Brokers say the rates reflect the raw strength of the San Gabriel Valley economy, where a potpourri of tech and other businesses, many with Asian ties, continues to thrive, largely unaffected by Fortune 500 plant closures and layoffs.

"We have a hedge against the general economy because of the Asian influence," said Jim Center, a senior vice president at Grubb & Ellis.

New space snapped up

Not that the recession isn't having some effect. The industrial vacancy rate is dropping at a steadily slower pace, as gross sales and leasing activity fell to 1.7 million square feet in the fourth quarter, less than half the 3.9 million square feet absorbed in the like period of 2000.

Still, new space tends to get snapped up quickly, especially since the amount of new construction has been minimal for many months. "There hasn't been a lot of construction coming on line," said Phil Lombardo, senior vice president at Trammell Crow Co.

And that makes new space a hot commodity.

For example, the 1.2 million-square-foot first phase of Trammell Crow's Irwindale Business Center is almost 100 percent leased after just 10 months on the market. The company had expected that would take a couple years.

Industrial rents have softened a bit. The average monthly asking rate held steady at 42 cents per square foot in the fourth quarter, unchanged from the prior three months, but off nearly 20 percent from a year ago when it hit 52 cents a foot.

Brokers say that direct-lease space is competing with more sublease space that retrenching companies are offering. The downturn is also reflected in the average size of deals, which has shrunk, several sources said.

For example, the average size of major industrial and office lease deals in the San Gabriel Valley during the quarter were for 111,489 and 42,266 square feet, respectively. That was down from 216,282 and 55,157 square feet, respectively, in the prior quarter.

The biggest deal of the fourth quarter involved just 181,500 square feet. Liberty Glove Inc., a manufacturer of commercial gloves and protective gear, moved from Baldwin Park to a larger space in the Catellus Commerce Center in the City of Industry. The company signed a 10-year-lease at 37 cents triple net. (Triple net deals require the tenant to pay for the building's maintenance, taxes and insurance.)

Little new construction

Just slightly smaller was a deal involving Western Pacific Storage Systems, a manufacturer of commercial shelving and storage systems. It leased 166,000 square feet on Arrow Highway in San Dimas for six years at 35.5 cents a month, per square foot, triple net.

In another sizable deal, Lee Kum Kee, a manufacturer of Oriental sauces and condiments, took 106,000 square feet of space on Don Julian Road in Industry. The 10-year lease was for 45 cents triple net.

Other industrial deals included 52,000 square feet taken at the Towers Industrial Park by Sabry Lee Inc. for five years at 40 cents triple net.

Major Events:

- Liberty Glove Inc., a manufacturer of commercial gloves and protective gear, leased 181,500-square-feet of space in the Catellus Commerce Center in the City of Industry for 10 years at 37 cents per square foot per month, triple net.

- Western Pacific Storage Systems, a manufacturer of commercial shelving and storage systems, leased 166,000 square feet on Arrow Highway in San Dimas for six years at 35.5 cents per square foot per month, triple net.

- Lee Kum Kee, a large manufacturer of Oriental sauces and condiments, leased 106,000 square feet of space on Don Julian Road in Industry for 10 years at 45 cents per square foot, per month, triple net.

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