Burgeoning business at the Los Angeles and Long Beach ports is pushing Mid Cities industrial space rentals to near capacity and shifting the area from a manufacturing to a distribution center.
First quarter vacancy rates for the area comprised of Santa Fe Springs, La Mirada, Buena Park, Cerritos, Norwalk and Downey dropped to 2.5 percent, down from the 3.9 percent of a year ago and the previous quarter's 2.7 percent, according to Grubb & Ellis Co.
"More than 14 million containers came into the ports last year," said Tim Cronin, a principle at Lee & Associates, "and the more goods that continue to come through here, the more valuable the space around that area will continue to become."
Cronin said that space-hungry distributors have been looking to areas like the Mid Cities region to expand, drawn in part by its proximity to several major freeways.
"As manufacturers continue to leave the area, distributors are more than happy to scoop up available space," Cronin said. "The area has a great workforce, easy access to infrastructure and prices are still relatively low when compared to surrounding areas," Cronin said. Space pinches in the South Bay area are contributing to the squeeze, too.
The absorption rate dropped precipitously, to 482,574 in the first quarter of this year, compared with 1.5 million in the first quarter of 2005, and the number of deals fell as well. The year's first quarter showed $2.3 million in sales and lease activity, flat compared with the same quarter of 2005.
"We're seeing land becoming harder and harder to come by," said Rick Ellison, senior director at Cushman & Wakefield. "But prices are still relatively affordable, so people are looking in this market as the economy continues to drive expansion and successful businesses look for room to grow."
There's not much construction on line. Just completed was the 170,000-square-foot Golden Springs distribution warehouse at 13335 Orden Drive in Santa Fe Springs. Kintetsu International has leased the space for 22 months at $3.7 million.
Both Cronin and Ellison said the steady rise in interest rates has the potential to slow the buying in the area.
"It hasn't happened yet, but with interest rates and prices rising, and with availability falling, those who were on the fringe of buying a 20,000 or 30,000-square-foot building a year ago now are leaning toward leasing," Ellison said.
The area's larger first quarter deals brought in on average about 53 cents per square foot, triple net, a 15 percent increase from the previous quarter, when the going price was 46 cents a square foot. (Triple net means the tenant pays for the maintenance and insurance costs as well as the taxes.)
The area's largest deal was Living Spaces' lease of the 277,000-square-foot Crown Cork & Seal plant, owned by real estate investment and management company LBA Realty LLC, and located on 14501 Artesia in La Mirada, for between 55 cents and 60 cents per square foot, triple net.
Cronin didn't see Living Spaces' arrival as a sign of a retail renaissance, however.
"Living Spaces has been looking for a while and this building seemed to fit their needs perfectly," he said. "But this isn't an indication of any trend hitting the area."
Another large first quarter lease Golden Oaks Furniture's six-year, $6.4 million deal for the Carney family's 170,000-square-foot building at 16050 Canary in Santa Fe Springs from Karney Management Co.
Accuride International leased 145,000 square feet of office space at 12311 Shoemaker Ave. in Santa Fe Springs to furniture manufacturer Janus et Cie for 9 years at $8 million.
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