The Mid-Cities industrial market, which had slowed down late last year, rebounded in the first quarter, spurred by burgeoning port activity that absorbed market space and lowered the vacancy rate.
Lease and sales activity increased 17.4 percent in the first quarter, to 2.3 million square feet, while the vacancy rate fell to 3.9 percent from 4.6 percent compared to the prior quarter, according to Grubb & Ellis Co.
"The market seems to be doing well," said Chris Sheehan, vice president with Colliers Seeley International. "Vacancies have tightened quite a bit, and the limited availability of space is bringing more tenants to the Mid-County marketplace."
While the region's vacancy rate was greater than the 2.2 percent countywide average, Vernon and Commerce had rates under 2 percent. Other cities in the sprawling region include Pico Rivera, Commerce, Montebello, Carson, Santa Fe Springs, Norwalk and La Mirada.
The Mid-Cities absorbed nearly 1.5 million square feet of industrial space in the first quarter, accounting for almost half of the 3.2 million square feet absorbed countywide. In the preceding three months, the region was the only in the county to give space back.
Brokers said that a vigorous economy and the overloaded ports spurred demand for warehouse space throughout the county, while the Mid-Cities especially benefited from warehouse space drying up in the South Bay and elsewhere.
"The ports continue to be a problem with the timeliness of getting goods in, so the need for warehousing space throughout Southern California continues to be increasing," said Matt Eggleston, a senior associate with Cushman & Wakefield.
The market heated up to a point that it wasn't uncommon to have several hopeful buyers vie for each available property.
There were 13 offers for a 30,000 square-foot property on Gage Road in Montebello, which sold for $82 per square foot in the first quarter, up $20 per square foot from the original asking price, said John Privett, a senior vice president at CB Richard Ellis Inc.
"There are virtually no land sites available, and any piece of property that comes on the market for sale turns into a bidding war," he said. "There is still a great amount of pent-up demand so we don't really see too much softening, at least over the next several months."
In another sale, Overton Moore Properties purchased a 255,200-square foot building at a Buena Park industrial park for $14.25 million from Ultra Wheel Co. That amounted to about $56 per square foot.
Also driving demand is the belief that rising interest rates will eventually make building purchases unaffordable, even as the growing ports keep the need for warehouse space high. "They see the long-term value of owning a building like this in a key market," Eggleston said.
Even so, rents have yet to increase in the tight market. The average asking rent in the first quarter was 50 cents per square foot in Mid Cities, down 1 cent from the prior quarter and 3 cents less than the countywide average.
Some analysts blamed the overall economy, which though generally healthy is being buffeted by high oil prices.
However, Adam Deierling, an associate at Colliers Seeley International, noted that rent concessions have dwindled, with landlords no longer giving two months of free rent on a three-year lease, a concession that wasn't unusual last September.
With concessions disappearing, it's expected that landlords will next start raising rents. In the next couple of quarters, that could be as much as 5 percent, said J.C. Casillas, a research services manager with Grubb & Ellis.
"All indicators showed the market healthy. It is going to continue to tighten up," he said.
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