Thanks to more than 1 million square feet of product coming on line, the San Gabriel Valley’s industrial vacancy rate rose to 3.2 percent in the third quarter, up from 2.7 percent the prior quarter. While the new inventory loosened the market a bit, it is still far tighter than a year ago, when the vacancy rate was 5.4 percent, according to data from Jones Lang LaSalle Inc.
That is drawing continued interest from developers, who are on track to add an additional 1.5 million square feet of industrial inventory.
“There was little, if any, construction during the recession. We have a lot of catching up to do. It’s a very healthy market with a lot of development activity,” said Ed Matevosian, vice president of CBRE’s L.A. North office.
San Gabriel Valley’s building frenzy comes on the heels of recent land sales for office, industrial and mixed-use, including 17 parcels of up to 30 acres that had buyers salivating during bidding wars last quarter. In addition, a number of redevelopments are breathing new vibrancy into once-weakened areas as the valley’s office vacancy rate declines. Currently at 12.6 percent, it’s down from 13 percent in the second quarter and 13.9 percent one year ago.
“There’s a high level of demand from retailers. We have seven new hotels either in the planning stages or under construction, and the industrial markets have been extremely tight throughout San Gabriel Valley,” Matevosian said. “We’re also seeing a lot of movement toward industrial condo development.”
In Alhambra, the 10.5-acre tract occupied by the Alhambra Place shopping center sold for $26 million to Shea Properties of Alisa Viejo. Redevelopment plans involve demolishing the existing shopping center for a mixed-use project that will include 140,000 square feet of retail and dining space as well as 260 apartments.
“We decided to develop in Alhambra mainly because it’s such a great location on Garfield and Main Street in a city that’s just eight miles removed from downtown Los Angeles,” said Brad Deck, Shea Properties’ senior vice president of retail acquisitions and development.
The hot construction market is fueling rising prices throughout the valley, both for development-ready land parcels and existing commercial real estate.
“More developers are chasing fewer deals, putting a lot of pressure on land prices,” Matevosian said. “Everyone’s buying, but it’s healthy buying. They’re all cash or have good equity leverage.”
While construction booms, the industrial lease submarket continues to contend with pent-up demand. This is reflected in industrial rental rates that are taking a moderate but uphill quarter-over-quarter swing. At 54 cents a square foot, the valley’s industrial lease rate is up 9 cents a foot from a year ago, but remains among the lowest in the nation – a factor that is continuing to fuel interest in its modest inventory. Meanwhile, office asking rents fell 2 cents from last quarter. At $2.18 a square foot, just a penny off last year’s rate, it’s expected to rise.
“We can look forward to three to five years of rental and price appreciation,” Matevosian said.
– Laurie L. Dove
San Gabriel Valley
In September, City of Industry’s America West Investment Inc. sold an 80,000-square-foot retail center for $43 million. The six-year-old Industry property, at 18506-18598 E. Gale Ave., is fully leased.
A 9.3-acre multibuilding property in bankruptcy at 3101 W. Temple Ave. in Pomona that includes a Hilltop Suites Hotel, Diamond Bar Inn & Suites and restaurant, sold in August to China State Construction Engineering of Rosemead. The 218,000-square-foot investment went for $19.5 million.
In a $17.5 million deal, the Olson Co. of Seal Beach purchased a 9.22-acre industrial tract from Sriracha maker Huy Fong Foods Inc. The 167,000-square-foot property in Rosemead is slated for redevelopment and will include the construction of townhomes.
Phase II of the massive Mission 71 business park in Pomona is taking shape. The first building of the new project, a 119,856-square-foot, one-story site, has been purchased by Unipac Shipping of Walnut in a $13.2 million deal.
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