Tight Market Stifling Activity

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Industrial facilities in the San Gabriel Valley remained scarce in the third quarter, driving manufacturers and distributors eastward in search of open space.


The market, dominated by ever-increasing import and export trade with China and other Pacific Rim countries, maintained its 1.2 percent vacancy rate of the second quarter, according to Grubb & Ellis Co.


“The San Gabriel Valley is so tight that it’s forcing users and customers east into the Inland Empire. Rents and sale prices are definitely continuing to go up,” said Kent Stalwick, senior vice president for CB Richard Ellis Group Inc.


With so little space to choose from, third quarter sales and leasing activity dropped by nearly a half-million square feet from the April-June period.


Average asking rents on industrial space rose 4 cents sequentially to 51 cents a square foot, 3 cents above year-ago levels.


And with little land to build on, relief isn’t expected. There were about 2.3 million square feet under construction at the end of the third quarter, most of any industrial submarket in L.A. but not enough to ease pressure on the 176.2 million square feet already in existence, according to Jeff Huberman of Lee & Associates. He noted that only half the space is being used for industrial purposes.


For tenants, it gets worse. Higher housing prices are tempting residential developers to take over industrial sites.


O’Donnell Group bought a 20-acre parcel owned by Lockheed Martin Corp. on Bonita Avenue in Walnut to develop a residential project. This follows Olson Co.’s purchase of a 3-acre parcel in Covina.


Brokers said that Pacific Rim companies opening up distribution centers in areas such as Walnut and Diamond Bar also have fueled the surrounding residential market.


Within industrial spaces ranging from 5,000 to 8,000 square feet, tenants were asking for office space.


“At least 15 to 20 percent of space leased out in every property is desired as office space, since these businesses are becoming increasingly employee intensive,” Stalwick said.


One of the quarter’s largest deals was a renewal by United Stationers, a distributor of office supplies and products, for a 215,000-square-foot property at Grand Avenue Distribution Centre in the City of Industry for a five-year period.


Leggett and Platt Inc., a manufacturer of bedding components including box springs, foam and fiber, leased a facility on Stephens Street in the central part of City of Industry for eight years.


Industrial properties for sale were rare, and sales activity slowed from the 21 properties that traded hands in the second quarter.


Huberman said three buildings in the City of Industry, one 220,000 square feet and the others 95,000 and 60,000 square feet, had just hit the market. The asking price for the smaller properties is $115 per square foot, higher than any recent asking price. “It is indicative of how hot the market is,” Huberman said.


Properties that do come available are typically 100,000 square feet or less, drawing smaller users who are more likely to buy than lease, according to Stalwick.


A 131,219-square-foot property at 14955 E. Salt Lake Ave. in City of Industry was purchased by Lr. Salt Lake LLC from Tulip Corp. for nearly $69 per square foot.


Proficiency Capital bought a 193,000-square-foot property at 1300 Optical Drive in Azusa from Perkin Elmer, and U-Freight purchased an 80,000-square-foot property at 16000 Phoenix Drive in the City of Industry for $73 per square foot from Robin Family Trust.


Also of note: The City of Industry Redevelopment Agency’s plan to sell land to developers was kick-started with the sale of a 20-acre parcel at Valley Boulevard and North Orange Avenue to Voit Development Co. The site was acquired by the city from Campbell Soup Co.’s Vlasic Pickles over a year ago.


“The sale was made to facilitate construction of high end buildings and raise aesthetics and high-end value of the city,” said Lee & Associates’ Huberman.

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