Owner-Occupants Continue to Drive Industrial Sales Activity
By JONATHAN DIAMOND
Marked by the tightest industrial market outside of downtown L.A., activity in the San Gabriel Valley for the third quarter continued to be led by owner-users taking advantage of low interest rates to buy buildings.
With vacancy rates at 2.2 percent on a base of 164 million square feet, according to Grubb & Ellis Co., demand for leased space was strongest among users in the market for less than 100,000 square feet.
An essentially fully leased market coupled with an eager and able stable of buyers has helped push prices higher, as institutional investors cashed out of several properties.
Rents have followed property values higher. Third quarter asking rents were 50 cents per foot, 11 percent higher than the 45 cents being asked in the April-June quarter and near the upper end of the L.A. County industrial market.
Those factors have forced some tenants to look to the Inland Empire or even out of state in search of locations for expansion.
"We're running out of product," said Jim Center, a senior vice president at Grubb & Ellis. "We're really starting to exhaust the supply side. There's not a lot of new construction coming on line. We're running out of land."
With few substantial sites left for development, Majestic Realty Co. remains in the catbird seat when it comes to leasing large portions of space.
"Majestic is the only one with substantial holdings in the San Gabriel Valley," said Steve Bellitti, who along with fellow Colliers Seeley International senior vice president Tom Taylor works the market. "Finding a five acre (development) site is virtually impossible."
Majestic, in partnership with the City of Industry, is developing the 400-acre, 6.5 million-square-foot Grand Crossing business park near the intersection of the Pomona (60) and Orange (57) freeways at the eastern end of the city.
On the cusp of the San Gabriel market, and about to get underway, the Carpenters Pension Trust, with CB Richard Ellis Advisors as its investment manager, has been given entitlements for a 1.5 million-square-foot development between Rose Hills Road and Mission Mill Road. The site, in an unincorporated corner of the county, sits between Industry and Whittier, a Mid-Cities market.
Focus on sales
While those leasing opportunities remained limited, sales activity continued to drive the market.
"Interest rates are still historically low, and Southern California has always been a small business, entrepreneurial market," said Phil Lombardo, a principal at Trammell Crow Co. "There are always more buyers than there is product for sale."
Lombardo pointed to the $11.6 million sale of a 181,000-square-foot building in Industry. ABS Computer Technologies Inc. purchased the building, which is 70 percent vacant, from fund manager RREEF.
Most of the sellers were institutional investors, and while many of the buyers were owner-users, other large buyers took advantage of the buying opportunity as well.
Layton Belling & Associates did two substantial deals in the third quarter. The first was the $59 million purchase of the 667,000-square-foot Concourse industrial and office complex from AEW Capital Management LP. The project consists of a 420,000 square feet of industrial space, 158,000 square feet of office space and 88,000 square feet of flex plus 5 developable acres. The project, built in 1989, is fully leased.
The Newport Beach-based investment and management firm also struck a $26.2 million deal for the Kellwood Building on Temple Avenue in Industry. The 471,000-square-foot building was purchased from TA Associates Realty.
About the only large lease deal completed in the quarter was the 85,000-square-foot expansion signed by Scholastic Book Clubs in an Irwindale building owned by Clarion/ING. The 7-year deal was valued at $3 million.
Looking ahead, Lombardo said leasing activity would pick up in the first quarter of 2004, but the limited supply of land would continue to push demand further out.
- Manchester Tank signed a 42,000-square-foot lease at 88 Fairway Drive in Walnut for an estimated aggregate values of $1.2 million.
- Layton Belling & Associates purchased two industrial projects for a combined $85.2 million. One was the 667,000-square-foot Concourse industrial and office complex, the other the 471,000-square-foot Kellwood Building on Temple Avenue, both in Industry.
- Scholastic Book Clubs signed a seven-year lease in Irwindale as part of a 5,000-square-foot expansion valued at $3 million.
- ABS Computer Technologies Inc. purchased a 181,000-square-foot building in Industry for $11.6 million from fund manager RREEF.
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