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South Bay (L.A.)
Industrial
John McDermott, national director of office and industrial properties
at Sperry Van Ness’ Irvine, California, office can provide
a long list of factors that speak to the health of the South
Bay (L.A.) industrial market. They include the increased absorption
of industrial space, an increased velocity in sales of industrial
product, a 50- to 75-basis point improvement in industrial cap
rates, greater institutional interest in the sector and continued
owner-occupied and user demand.
“The ongoing industrial trend for South Bay is the private
investor market, which continues to outpace every other region
in the country in number of [industrial] sales and total sales
volume,” says McDermott. “Construction has been
heavily oriented to owner/ user and pre-leased projects. I am
not aware of any spec construction of industrial [properties]
in South Bay.”
Distribution and manufacturing needs have continued to direct
development toward locations with good freeway access. “Both
investors and users seek the 110, 605 and 91 corridors,”
says McDermott, who maintains that the infill repositioning
of industrial assets will be the only long-term option due to
the resulting scarcity of land for new development. Despite
this trend and the added constraints of zoning and land entitlement
issues in South Bay, the port of Long Beach continues to fuel
the area.
“The market is tight and only small spaces are available,”
says McDermott. “No one large [industrial] player is driving
the market for absorption.”
McDermott says the year-to-date industrial sales performance
for Los Angeles typifies what is occurring in South Bay. So
far, there has been more than $1.6 billion in sales volume at
the $1 million-plus sales transaction level. The figure consists
of 420 transactions covering more than 23.9 million square feet
of industrial space. The average cost is $67.87 per square foot.
Rental rates for the area have averaged 65 cents per square
foot and ranged from 38 cents to $1.95 per square foot.
Industrial vacancy rates have improved with Los Angeles leading
the country in absorption, reports McDermott. Overall, the South
Bay submarket’s vacancy figures range between 3 and 7
percent, depending on the size of the space available in each
project.
McDermott offers an auspicious forecast for South Bay’s
industrial sector as 2004 progresses, citing the low sales and
rental rates, the paucity of new construction in the area, the
strong occupancy and absorption, and the quality tenants.
“The Long Beach market will be the market to watch,”
he says. “It is undervalued in nearly all of the product
types compared to other Southern California coastal regions.
Significant profit is there to be taken by current owners, and
the demand generators and redevelopment movement there will
add value for the buyers long term.”
©2004 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints of
this article contact Barbara
Sherer at (630) 554-6054.
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