There was lots of activity in the Mid-Cities industrial market during the fourth quarter, but with it came higher vacancy rates and negative net absorption.

In the swath that runs south from downtown Los Angeles between the Santa Ana (5) and Long Beach (710) freeways, vacancy rates rose to 4.6 percent in the October-December quarter from 4 percent in the preceding three months, according to Grubb & Ellis Co. Asking rents were 51 cents a square foot, on par with the Los Angeles County average and up 1 penny from the third quarter.

But 229,108 square feet of industrial space came back on the market, making Mid-Cities the only industrial submarket to show negative net absorption in the fourth quarter.

Mid-Cities accounted for more than one-fifth of the nearly 22.8 million square feet of vacant industrial space countywide during the fourth quarter. Its vacancy rate was the highest o f any submarket in L.A. County, which averaged 2.4 percent.

"The rents are flat, which shows clear stability," said J.C. Casillas, L.A. County research services manager for Grubb & Ellis. "I think we're going to see it continue to stabilize and start going upward. We might see a 5 percent to 6 percent increase in rents in 2005."

With sales and lease activity up 16 percent over the past year, brokers expect the industrial market will tighten as distributors search for warehouse locations near the ports.

"I expect to see lease rates increase and sale prices go up. Just in the last month, people were starting to raise rates," said Jim McFadden, a senior vice president with Grubb & Ellis. "Vacancy rates will drop dramatically in the new year. I'm optimistic."

Throughout 2004, nearly 7.7 million square feet of industrial space was leased or sold, compared with 6.6 million square feet a year earlier, according to Grubb & Ellis. In the last three months of the year, the region had nearly 2 million square feet leased or sold, up from nearly 1.9 million in the third quarter and 1.5 million in the fourth quarter of 2003.

With the Port of Los Angeles surpassing JFK International Airport to become the nation's top international freight gateway, the market seems poised to benefit. "There are always those companies that want to stay close to the ports," said McFadden. "Maybe key personnel prefer to stay close by or the company doesn't want to pay to transport their goods from the port to the Inland Empire."

Several of the biggest transactions in the last three months of 2004 took place in Santa Fe Springs.

Southern Wine & Spirits of America Inc. leased 610,000 square feet in the Golden Springs Business Center from Golden Springs Development Co. for an undisclosed price. The tenant plans to expand to 810,000 square feet.

Relocating from the City of Industry, L.A. Specialty Produce Co. Inc. took space in the Golden Springs Business Center. The distributor of specialty produce and food items to high-end restaurants and hotels signed a 10-year lease on 187,000 square feet for an undisclosed price, said John McMillan, senior director at Cushman & Wakefield who represented the tenant.

Processing and Distribution Services Inc., a clothing distributor, signed a 10-year lease valued in excess of $20 million for 395,204 square feet in the First Industrial Distribution Center at 14141 Alondra Blvd. in Santa Fe Springs, according to Rick McGeagh, a senior vice president with CB Richard Ellis, which represented both parties.

Invesco, an independent investment management firm, sold its 199,634-square-foot Valley View Business Center in La Mirada and its 108,042-square-foot Centre Pointe industrial park in Carson for more than $25 million to financial services provider Teachers Insurance and Annuity Association - College Retirements Equities Fund, according to Patrick L. Welsh Jr., a vice president with Trammel Crow Co., which represented both parties. La Mirada is fully occupied; Carson is 90 percent occupied.

Bay Cities Container Corp. entered into a 10-year lease for 100,000 square feet at 8460 Whittier Blvd. in Pico Rivera, for 41 cents per square foot triple net, said Jeff Hubbard, a senior vice president with Colliers Seeley International who represented the property owner, Robertson Properties Group.

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