The rising tide of international trade through local seaports has ignited a boom in the Mid-Counties industrial market.
Leasing and sales activity was robust through the third quarter, vacancy rates dropped, and developers scrambled to get going on major speculative development projects.
“The Mid-Counties now has 180 acres in escrow for speculative development. This is the most industrial activity ever for Mid-Counties,” said Clif Fincher, an industrial broker at Lee & Associates.
Among the big new Mid-Counties projects is an industrial park planned for a site at Norwalk Boulevard and Telegraph Road in Santa Fe Springs. The city plans to build a pedestrian bridge between the southwest and northeast corners of the Norwalk-Telegraph intersection to handle the anticipated pedestrian flow between the proposed industrial buildings and restaurants.
Nearby is MC & C; Commerce Park, a 26-acre project with nine speculative buildings at Florence and Shoemaker avenues.
Also in Santa Fe Springs, Thrifty Oil Co./Golden West Refining is undertaking a $200 million industrial park project on its 265-acre site.
Santa Fe Springs and La Mirada are where most of the Mid-Counties action is taking place. Of the 1.6 million square feet currently under construction, most comes from those two cities.
In the third quarter, 627,734 square feet of industrial space was sold or leased in La Mirada, while 556,051 square feet of industrial space was sold or leased in Santa Fe Springs.
That represents about three-fourths of the Mid-Counties’ total third-quarter sales and leasing activity of 1.51 million square feet. Year-to-date, some 4.25 million square feet of Mid-Counties industrial space has been sold or leased, according to commercial brokerage Grubb & Ellis Co.
Both the third-quarter and year-to-date activity levels are substantially above the comparative year-ago figures. In 1996, the Mid-Counties market saw 744,448 square feet of industrial leasing and sales activity, and 3.27 million square feet during the first three quarters, Grubb & Ellis reported.
Of the year-to-date activity, warehouses have accounted for about 70 percent, manufacturing facilities represented about 25 percent, and R & D; facilities accounted for the remaining 5 percent.
The activity is causing vacancy rates to ratchet downward.
Rates for modern, free-standing industrial buildings are below 2 percent in Cerritos, Buena Park, La Mirada, and Santa Fe Springs. Whittier’s vacancy rate is 5.8 percent while La Palma, with a vacancy rate of 16.6 percent, is the only Mid-Counties submarket with double-digit vacancy, said Fincher of Lee & Associates. Most of La Palma’s vacancy is contained in a single 300,000-square-foot building formerly occupied by Orchid Paper.
The overall industrial vacancy rate for the Mid-Counties market is 6.2 percent, improved from 6.6 percent at mid-year, according to Grubb & Ellis.
All the recent activity is causing the values of industrial buildings and land to rise, along with lease rates, reflecting strong demand and limited available inventory, said Michael Foley, associate vice president at The Seeley Co.
“We’re seeing the results of last year’s momentum. Companies are less fearful now that they see how well the market has been going since last year. Growth is continuing in a positive direction,” Foley said.
The Mid-Counties market is definitely beginning to pull tenants from other markets, said Lance Parker, senior associate at Grubb & Ellis.
As inventories are squeezed, effective industrial rents for the area, averaging 37 cents per square foot, continue to climb. Last year’s average effective rent for the Mid-Counties market was 34 cents.
“Land prices have gone up, and the rents for new, functional buildings are the highest we’ve seen in 10 years,” said Fincher of Lee & Associates. “More building permits have been issued in 1997 than for the entire 1994-96 period.”
Vans Shoes, Big Dog Clothing, Central Pet and E-HWA are some of the companies moving to or expanding in the area. Storage and warehousing companies have been drawn to the region as well.
It is not uncommon for speculative buildings in the area to be totally leased within six months of completion, said Chuck Lyons, principal of industrial development firm Fu-Lyons & Associates.
“We are bullish about this excellent market. The market is substantially better than last year in terms of rental rates and user demand,” said Larry Harmsen, a vice president at Security Capital Industrial Trust, which owns 750,000 square feet in the Mid-Counties market.
“The reason why Mid-Counties is such a good investment market is because it’s a land-constrained infill market,” Harmsen said.
A major factor contributing to the market’s desirability, Fincher said, is its large inventory of buildings with 24-foot-high ceilings, the minimum height required for dock-high loading. High-clearance warehouse space is in strong demand. Many developers of such space are leasing more than half of it before the projects are built and the remainder within six months of completion.
“Activity is for big boxes done well,” said Bob Crenshaw, senior vice president at Grubb & Ellis.
As for the retail sector, one of the largest deals of the third quarter was The Macerich Co.’s purchase of the 927,000-square-foot Stonewood Mall in Downey for $92 million.
The Stonewood deal marks the 14th regional mall Santa Monica-based Macerich has acquired since going public in March 1994. In that time, the Macerich mall portfolio has grown from 10 million square feet to more than 21 million.
– Security Capital Industrial Trust is in escrow to buy a 54-acre site in Buena Park from Kraft Foods. Security Capital plans to construct four new buildings totaling 1.2 million square feet on the site.
– MC & C; Commerce Center in Santa Fe Springs is being constructed on 26 acres at Florence and Shoemaker avenues. Nine new industrial buildings will range in size from 15,000 to 153,000 square feet. The 550,000-square-foot project is a joint venture between MC & C; and Fortis Investments LLC.
– Transpacific Development Co. is adding 30,000 square feet to a 50,000-square-foot facility occupied by Delta Dental Group at the Cerritos Towne Center at 12898 Towne Center Drive in Cerritos.
– The Macerich Co. bought the Stonewood Mall in Downey for $92 million.
– Fremont Properties and RREEF Funds are jointly developing two buildings with a combined 337,125 square feet of space at 14114 Rosecrans Blvd. Burnham Hi-Tech moved to the site in August. Only 54,000 square feet remain to be leased.
– Fremont and RREEF are also involved in another deal on Lakeland Avenue. Powerine Oil sold the property where the partners plan to build 284,580 square feet of industrial space by mid-1998.
– Best Foods sold its facility in 1996 to Prudential Real Estate Investors, which constructed two buildings totaling 510,000 square feet at Shoemaker Avenue and Alondra Boulevard in Santa Fe Springs. Vans Shoes relocated there from Orange County by leasing the southern building of 164,000 square feet. Central Garden and Pet leased 210,000 square feet of the northern building.
– Western Realco in May 1997 developed 215,000 square feet on Greenstone Avenue in Santa Fe Springs. The property was completely leased out to Century Fasteners, which took 105,270 square feet, and Redline, a medical company, which earlier had leased the other half of the project.
– Pacific Theaters plans to build 223,000 square feet of commercial buildings in Santa Fe Springs, on the site of the old Norwalk Drive-In.
– Golden Springs Development Co. is developing a 265-acre site in Santa Fe Springs. The Seeley Co. is the exclusive marketing agent.