Lack of Industrial Space Could Squeeze Out Businesses

By LAURENCE DARMIENTO
Staff Reporter

Space remained tight in the San Gabriel Valley industrial market during the fourth quarter, raising concerns that expanding and relocating businesses will be forced elsewhere as the economy picks up steam.

The 185.3 million-square-foot market saw its vacancy rate remain essentially flat at 2.3 percent just 0.1 percent higher than the third quarter and still the lowest industrial rate outside central Los Angeles, according to Grubb & Ellis Co.

Even with so little space available, only a handful of new projects have contributed additional inventory to the market. With interest rates still low, anything available in the sales market got gobbled up.

"We will be taking more buyers to the Inland Empire," said Jim Center, a senior vice president at Grubb & Ellis. "The first couple of weeks of the year here I have never been busier."

Not surprisingly, rents remained strong at 43 cents per square foot. They are expected to rise in the coming year, although they remain lower than pricier markets such as North Los Angeles and Mid-Cities.

In the smaller office market, meanwhile, the vacancy rate dropped one-tenth of a point to 11.4 percent, the lowest of all submarkets in the county.

In the north San Gabriel Valley, the final phase of the last major new industrial project in the area Trammell Crow Co.'s Irwindale Business Center was 75 percent leased by year-end, with expectations that the 817,000-square-foot phase may be fully leased by the end of the first quarter.

Unical Aviation, a manufacturer of airplane parts, took 127,000 square feet during the quarter, signing on to a five-year lease at 40 cents triple net. The aerospace company outgrew three buildings it had occupied in Baldwin Park.

"You have pretty tight market conditions in the North San Gabriel Valley," said Phil Lombardo, a principal at Trammell Crow.

Tight conditions contributed to a big sales deal. SSR Realty Advisors sold the Azusa Industrial Center, a 1980s-era three-building industrial park, for $27.6 million to Lend Lease, another pension fund advisor.

The 342,000-square-foot center went for $64 a square foot, a sign that Lend Lease expects rental rates to rise. "It's a very strong price," Lombardo said.

Once the Irwindale park, located in a reclaimed gravel pit, is leased, the only new major industrial projects in the Valley will be Majestic Realty Co.'s Grand Crossing and a new project by the Carpenters Pension Trust of Southern California that has just broken ground.

However, neither project will help loosen the tight market in the north Valley. Grand Crossing is located at the extreme east end of Industry and the carpenters' Gateway Pointe Industrial Park is on county land close to Whittier, at the southern mouth of the San Gabriel Valley.

No tenants signed up at the 6 million-square-foot Grand Crossing in the fourth quarter. But Hills Pet Nutrition finally moved into a 325,000-square-foot space leased earlier. The project is now almost a third built out, and will take three more years to complete.

Kent Valley, a Majestic senior vice president, said interest has been picking up over the past few months as the economy improves. And in a twist, some companies in the Inland Empire are looking for a location a little closer to central Los Angeles.

"It's harder and harder for those companies in the Inland Empire to get their containers in and out," Valley said, noting how bad traffic gets on the Pomona (60) Freeway.

Majestic did complete a number of deals at other sites in Industry. Among the largest, Sweet Paper Sales Corp., a restaurant supplier, leased 100,000 square feet of space in a standalone building for five years at 42 cents triple net.

Other deals included the sale-leaseback of a 116,000-square-foot building in Industry by an American unit of French conglomerate Compagnie de Saint-Gobain to First Industrial Realty Trust Inc. The deal was valued at $5.1 million. And Tenet Healthcare Corp. signed a 10.5-year, 91,000-square-foot lease at The Alhambra office complex to consolidate its Southern California operations. The deal was valued at $22 million, according to one source.

Meanwhile, ground was broken on the five-building, 1.6 million-square-foot Gateway Pointe park, with Cushman & Wakefield the exclusive leasing agent for the property.

"The strategy is basically to be the lower priced alternative to the Mid-Cities market Cerritos, La Mirada, also Pico Rivera, Commerce and Vernon. It's also an alternative to companies in west industry," said Stu Milligan, a director at Cushman & Wakefield. He said lease rates at the complex would be in the mid-40 cent range, triple net.


Major Events:

- Unical Aviation leased 127,000 square feet of space at the Irwindale Business Center for five years.

- SSR Realty Advisors sold the Azusa Industrial Center, a three-building, 1980s era industrial park, for $27.6 million to Lend Lease.

- Sweet Paper Sales Corp., a restaurant supplier, leased 100,000 square feet in an Industry building for five years at 42 cents triple net.

- An American unit of the French conglomerate Compagnie de Saint-Gobain sold its 116,000 square foot Industry building for $5.1 million to First Industrial Realty Trust Inc. and then leased it back.

- Tenet Healthcare Corp. signed a 91,000-square-foot lease at The Alhambra office complex in a 10.5-year deal.

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