REAL ESTATE QUARTERLY - Mid-Cities
Drop in Inventory, Lack of Land Lead to Less Industrial Activity

By MATT MYERHOFF
Staff Reporter

Industrial activity in the Mid-Cities area was down in the second quarter and the two-year trend of purchasing rather than leasing warehouse storage and distribution spaces showed signs of easing.

Sales and leases in the industrial corridor running from just south of downtown Los Angeles to just north of the L.A. and Long Beach harbors totaled 1.7 million square feet in the April-June period, according to Grubb & Ellis Co., a 16.9 percent drop from the 2.1 million square feet leased and bought during the first three months of the year.

While low interest rates have spurred more purchasing over the last couple of years, brokers say leasing activity is catching up as the space available for sale and the amount of developable land is dwindling.

"What's new is in the last quarter there's much more leasing activity since there's less and less available space to buy and business activity is increasing," said Rick McGeagh, a senior vice president at CB Richard Ellis.

Meanwhile, net absorption was 886,288 square feet in the second quarter, as more space was taken off the market.

"As a result, availability is down," McGeagh said. "And several large deals that will be reflected in the third quarter absorption really put a dent in the supply of big-box space over 100,000 square feet. Many of the new projects have sold out and recent sales are at record high prices."

The area's second quarter vacancy rate of 4.1 percent compared with 4.7 percent in the previous three months. In the second quarter of 2003, the vacancy rate was 2.8 percent.

"The 2.8 vacancy was extremely low," said J.C. Casillas, research services manager for L.A. County at Grubb & Ellis. "A year ago the market was pretty tight. Then there was a flurry of projects that came online and put space on the market. A lot of that is attributable to the completion of the Pico Rivera project."

The asking rents for industrial space of 49 cents per square foot for the second quarter were down a penny from the first quarter and three cents less than the second quarter of 2003. But many of the large leases signed in the second quarter had actual rates of between 43 and 47 cents for Class A buildings.

"With the market soft, actual rents are lower than the asking rent, even with the increase in leasing," said Jim McFadden, a senior vice president with Grubb & Ellis. "As more and more people switch to leasing, and purchase costs becoming prohibitive, then we'll start seeing a shift up."

Second quarter sales and leasing activity in the Mid-Cities clustered around the Pico Rivera Commerce Center, a 2 million-square-foot, 10-building industrial complex on a 150-acre former Northrop Grumman site completed in May by developers Sares-Regis Group.

Medical Depot leased a 121,000-square-foot distribution warehouse from MetLife Inc., which had purchased one of the buildings at the commerce center.

Studio RTA, an importer of ready-to-assemble furniture, moved from its previous home on Rex Road, across the street from the Pico Rivera Commerce Center, into a 205,000 square- foot-building that it purchased in the commerce center for an undisclosed price. In June, Studio RTA subleased 111,000 square feet of its 140,000-square-foot warehouse distribution space to baby clothing distributor Baby Phat for 49 cents a square foot, Stevens said.

Minneapolis-based Tyco Plastics & Adhesives, a subsidiary of Tyco International, extended its lease from B.R. Investment Co. for 106,000 square feet at 13833 Borate St. in Santa Fe Springs.

Custom Craft Co., which manufactures wood mini-blinds in Taiwan for distribution to Wal-Mart Stores Inc. and Home Depot Inc. leased 131,280 square feet from Goldrich & Kest Industries LLC at 5911 Fresca Drive in La Palma.

Global One Logistics Inc., a provider of third party logistics for storage and distribution, leased 88,197 square feet from EastGroup Properties LP at 11954 Washington Blvd. in Santa Fe Springs.

Major Events:

-Studio RTA purchased a 205,000-square-foot building at Pico Rivera Commerce Center and subleased 111,000 square feet of warehouse space to Baby Phat for 49 cents a square foot.

-Tyco Plastics & Adhesives extended its lease for 106,000 square feet at 13833 Borate St. in Santa Fe Springs with B.R. Investment Co.

-Custom Craft Co. leased 131,280 square feet from Goldrich & Kest Industries LLC at 5911 Fresca Drive in La Palma.

-Global One Logistics Inc. leased 88,197 square feet from EastGroup Properties LP at 11954 Washington Blvd. in Santa Fe Springs.

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