REAL ESTATE QUARTERLY - San Gabriel Valley
'Return of Large User' Sets Off Explosion of Industrial Leasing
By LAURENCE DARMIENTO
It was a breakout quarter in the San Gabriel Valley.
After nearly two years of slow industrial leasing activity, the market exploded in the April-June period with an assortment of large deals, including a half-million-square-foot whopper that was one of Los Angeles County's largest.
While other L.A. submarkets remained tentative, companies in the San Gabriel Valley pulled the trigger on deals that have been on the back burner for months.
"It's the return of the large user," said Phil Lombardo, a senior vice president at Trammell Crow Co. "There was great momentum, and there could be more of it in the third quarter."
In a largely built-out market where there is little new construction, it showed in the numbers.
The industrial vacancy rate fell to 1.8 percent from 2.4 percent in the previous quarter, a figure not seen in several years. Meanwhile, total sales and lease activity shot to 2.8 million square feet from 1.9 million in the first quarter, according to Grubb & Ellis Co.
And while rents were still soft, dropping a penny to 43 cents a square foot since the first quarter, many brokers expect rates to rise in the second half.
"The second quarter figures are telling us that there is a crossover going on from a tenant's to a landlord's market," said Jim Center, a senior vice president for Grubb & Ellis.
The return of the big deal was marked with a jumbo 500,000-square-foot lease that Coaster Co. signed at Majestic Realty Co.'s Fairway Business Center in Industry.
Coaster, a 25-year-old company, is riding the wave of rising Pacific Rim trade as an importer and distributor of inexpensive furniture manufactured in Asia.
The company left 430,000 square feet of space in Santa Fe Springs for the less expensive Industry market as part of an expansion and consolidation of space.
"Low interest rates have allowed companies to improve their balance sheets, and they are now in the position to move on some opportunities," said Tim Cronin, senior vice president at Lee & Associates, who represented the distributor.
He said the lease covers 6 & #733; years starting at 38 cents full service gross (in which the landlord pays for all taxes, insurance and maintenance) for a total consideration of $15 million.
All told, Majestic Realty the largest landlord in Industry reported leasing 1.5 million square feet of space in the quarter, its single biggest quarter in three years.
"Sales are up. Retail seems to be doing better. Third party logistic companies are increasing their space for clients and new customers," said Kent Valley, a Majestic senior vice president.
Driving the market were deals involving importers and Asian-based companies, such as Peng Chang, a mainland Chinese company that plans to import half-finished aluminum window frames.
The company leased 260,000 square feet of space at the Fairway Industrial Park for five years at 39 cents full service gross. It plans to finish production on the frames at the park.
Optimistic about future lease demand, Majestic is moving ahead with 1.45 million square feet of construction at its Grand Crossing business park in east Industry.
The park, which will total 6 million square feet when finished, is the single largest industrial park under construction in the San Gabriel Valley. About 2 million square feet are already leased and 325,000 square feet are vacant. Valley said he expects Majestic will sign several large lease deals there this quarter.
Lombardo represented Closet World, a maker of home organizing systems that took 296,500 square feet at Seventh Avenue in Industry as part of an expansion and consolidation. The seven-year deal is for 38 cents full service gross. It was one of two major deals he handled.
"These companies had demand and needed to make a move," Lombardo said.
Meanwhile, the bottom did not exactly fall out of the sales market, which has provided most of the highlights during the past two years.
But with about 20 industrial buildings closing in the first quarter, the supply of buildings available for sale has started to dry up. Only half a dozen sale transactions closed in the second quarter.
Among those was a deal in which Trend Lighting bought a 60,000 square foot building at the Irwindale Business Center for $4.6 million, or about $76 per square foot.
But there were also several deals over $100 a square foot.
"The demand is outstripping supply in both the sales and lease market," said Center of Grubb & Ellis.
-Furniture distributor Coaster Co. took 500,000 square feet at the Fairway Business Center in Industry for 6 & #733; years at 38 cents per square foot.
-Closet World leased 296,500 square feet of space on Seventh Avenue in Industry for seven years at 39 cents per square foot.
-Peng Chang, a China-based window frame manufacturer, leased 260,000 square feet of space at the Fairway Industrial Park.
-Action Performance Cos. signed a 250,000-square-foot lease at the Fairway Business Park in Industry for 42 cents gross for five years.
-Majestic Realty Co. announced plans to move ahead with 1.45 million square feet of spec construction at its Grand Crossing business park in east Industry.
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