the West Inland Empire landlords to focus
on tenant retention and their willingness
to reduce lease rates and sales prices drastically are starting to bear fruit.”
A major market correction continues in the East Inland Empire as large,
newly completed industrial warehouses sit
empty. With the decrease in port activity
and the large multi-national distribution
companies that came with it, landlords in
the East Inland Empire are looking at ways
to draw tenants from other markets and
have been met with limited success.
“The market is driven by consumer
spending,” says Greg Ersek principal and
executive vice president of Essex Realty
Management in Irvine. “When consumer
spending returns, there will be a return of
demand for industrial properties. The region should also see some modest leasing
by firms taking advantage of lower rents.”
BLEEDING CONTINUES IN SAN
DIEGO, AND ORANGE COUNTIES
Industrial continued to weaken in Orange
and San Diego counties as users maintained their stance of giving back space.
However, as fully developed markets, the
two counties were expected to recover
quicker than the Inland Empire, which
has experienced a rapid increase in industrial building over the last five years.
In Orange County vacancies increased
by a modest 20 basis points to 5.8% in
Q3, up from 4.4% from the same quarter
a year ago, according to Colliers International. In a report by Voit Real Estate
Services, vacancies in San Diego stood
at 8.6% at the end of the third quarter,
compared to 6.3% a year ago. The county
posted 1. 1 million square feet of negative
industrial absorption in the third quarter
of 2009, giving the market a total of 2. 26
CA Ports: A look on the Bright Side?
Looking at the ports of LA and Long Beach, despite what is perhaps the steepest decline
in container volumes over the past two years, the neighboring industrial real estate market remains at one of the lowest vacancy levels in the country. That’s not to say things
aren’t bad, but according to Jones Lang LaSalle Inc., “This speaks to the long-term view
of the region, with little attrition among port related users.”
John Carver, an executive vice president in JLL’s Los Angeles office, says that although West Coast ports have experienced the most severe declines in cargo volumes,
“they have not fallen victim to high vacancy rates owing to the overdevelopment seen in
other US ports across the country.”
He continues that, compared to the national average, the LA/Long Beach market has
remained “relatively buoyant,” but he explained that in markets such as Houston, Savannah and Jacksonville, supply has surpassed demand.
According to JLL’s Ports, Airports and Global Infrastructure report, published in July,
the Port of Los Angeles has the largest capacity at 7. 8 million TEUs (20-foot equivalent
units) and the highest asking rents at $7.58 per foot. The Port of Savannah and Port of
Charleston have the highest vacancy rates, while the Port of Seattle and Long Beach
have seen the largest year-on-year declines in cargo volume at - 13.6% and - 13.2%, respectively.
And while port volumes have yet to actually increase, their rate of decline has lessoned over the past two months, according to Carver, who points out that the real estate
equation trails such volume shifts by about 12 months. “A positive uptick in volumes
could be an indicator of improved industrial real estate conditions on the near horizon.”
According to the JLL report, the ports of Los Angeles and Long Beach continue to take
a long-term view of their operations and are making improvements now to prepare for
the inevitable return of cargo-volume growth. The long-term viability of the San Pedro
ports will remain strong given two critical factors: A 40-million base of consumers within
a one-day’s drive from the terminals, and its geographical proximity to the Asian all-water
routes to the US.
Carver explains that “many port-centric users are electing to extend their commitment to remain in the Southern California port market, and in so doing, they are being
rewarded with more favorable terms by those landlords able to maintain their long range
perspective of the market.”—Natalie Dolce
In October, Rexford Industrial LLC acquired a
newly constructed 176,000-square-foot light
industrial property, RIF IV Cornerstone, located
at 9220-9268 Hall Rd. in Downey for $10 million.
The private industrial real estate firm acquired
the property directly from the lender out of foreclosure in an off-market transaction.
million square feet of negative absorption
for the first three quarters of the year.
“It just keeps bleeding,” says Chris
Reutz, director of research for Colliers International in San Diego. “A lot of it has to
do with tenant closures. They tried surviving the recession for as long as they could
and now they are just closing their doors.
I expect the negative activity to continue
in the fourth quarter, just not at the same
rate as the last two quarters.”
The average asking industrial triple-net
lease rate was 67 cents per square foot per
month in the latest quarter, a decrease of
9.5% from an asking rate of 74 cents during the like quarter last year, according to
the Voit report.
“San Diego is a fully developed market
with not a lot of available land,” says Mike
Severson, vice president of acquisition and
development with the private REIT Bixby
Land Co. He adds that the recession has
driven down rents by 20% to 30% in both
Orange and San Diego counties. “I see rents
declining for another 12 to 18 months then
a pretty sharp rebound,” he says.
Sales and leasing activity in Orange
County declined slightly over last quarter
to 2. 6 million square feet, according to a
Colliers International third-quarter report.
As a result of the increasing vacancy rate,
Orange County is seeing some industrial
users look at more affordable neighboring
markets such as the Mid-Counties, San Gabriel Valley or West Inland Empire, while
others shutter local operations or consolidate and relocate to smaller space.
“Orange County is better off than other
areas because it’s more diversified,” says
Ersek. “Occupancies are down, but we
were prepared for them to go lower.”—SOCAL