Q&A: 2012 CRyStAl BAll
Things are certainly improving for Southern California’s industrial market, but the pace of the recovery
remains undecided. A handful of local experts share
their thoughts on the market this year.
Where do you believe industrial vacancy and
rental rates will be in 2012?
Rob Neal, Managing Partner, Hager Pacific Prop-
erties: The core markets of L.A. have more than
800 million square feet of W/D inventory and the
lowest vacancy in the country at 4.8%. There’s
only 1. 5 million square feet of development under
way in the county and not much more in the pipe-
line. With the projected increases in trade and em-
ployment over the next few years, the market will
experience significant net absorption. By 2015,
the L.A. County industrial vacancy rate should be
around 3.5%, driving rents at least 20% higher.
Bryan Shaffer, VP, George Smith Partners:
Vacancy will decline in both the Inland Empire and
South Bay. New construction will be leased up
quickly. The only negative will be the smaller, older
buildings, which have limited demand.
Wes Hunnicutt, Principal, Newmark Knight
Frank: We anticipate the South Bay and Greater
L.A. market will hover in the 5% to 6% range for
quality product, Greater Orange County in the 7%
to 8% range and Inland Empire West in the 8%
to 9% range. The East Inland Empire will remain
sluggish until demand increases in other markets.
Robert Socci, EVP, Voit Real Estate Services:
As smaller companies grow, they’re sometimes
forced to move out to the Inland Empire. Many
tenants, however, have found space in the markets
they are already in. We expect lease and sale rates
to continue to increase in 2012, but at a slow pace
of 3% to 5%. Some product types, such as large
buildings in the Inland Empire, will see more and
faster growth than others. If we get firmer economic footing, we’ll see a spike in pricing.
Hunnicutt: Most landlords are not as concerned
as they were two years ago about facing vacant
buildings, which is why it’s become increasingly
difficult to address leases that have longer than 18
to 24 months remaining.
The nation’s busiest port systems saw lackluster
activity levels over the past few months. What’s
the impact on the region’s industrial market?
Neal: While the ports aren’t generating the same
amount of imports as in the boom years, they’re
still very active, especially in exports, and remain
the most critical driver of tenant demand. Tenants
that manufacture value-added products, such as
electronic components and technology parts, are
rebounding strongly due to international trade. In
November, more US goods than ever before moved
out of the port of L.A. to foreign destinations.
Hunnicutt: Most tenants in this region have a
direct relationship with the ports. Areas closest
to the ports will remain in the greatest demand
due to increasing transportation costs. Companies
that want to be near the ports will pay a premium,
but in the next 12 months it will remain modest
and begin to increase as the demand does. For
instance, rates in the South Bay are 20% to 25%
greater than the Inland Empire West. In the past,
the delta has been greater than 40% and we forecast this will return in the next 18 to 24 months.
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