The downtown Los Angeles industrial market consists of about 120 million square feet of space, with most of the product built between 1930 and 1960. Due to the city’s high density, there is very little land available for industrial development, but there are a few projects taking place, most of which are build-to-suits for owner/users. However, Marcus & Millichap does report that speculative industrial development is still occurring in Los Angeles despite the significant development constraints. The commercial real estate brokerage’s research shows that Los Angeles, along with San Francisco and Seattle, weathered the recession better than its peers.

According to Dwight Hotchkiss, senior director at Cushman & Wakefield in Los Angeles, the downtown area is composed of multiple “micro-markets” or clusters of industries, which include produce distributors, garment manufacturers, toy importers/exporters and other businesses servicing the greater metropolitan area.

Two new industrial developments in Los Angeles, which will be tailored to the aforementioned industries, include a 6.6-acre site in the eastern section of downtown. The developer, Dynamic Builders, has the property under contract with designs to construct up to five new, for-sale buildings. The other major industrial development, also being developed by Dynamic Builders, is currently underway in central L.A. and will comprise approximately four new buildings ranging from 20,000 to 75,000 square feet.

“The vast majority of [industrial] development is taking place outside of central downtown L.A. because of the prohibitively high cost of the land and the lack of availability,” says Hotchkiss. “There are very few industrial developers willing to develop in the area.”

“The biggest trend we are seeing downtown, however, is older, less efficient, multi-story industrial buildings being bought by housing developers to be converted to lofts or apartments. There is a strong demand for housing, and tax credits are being offered by the city. Most of the housing or loft [conversion] developers are new to downtown.”

Warehouse and distribution tenants are the main industrial targets for those few downtown L.A. developers. Some manufacturing space can be found in downtown but it is minimal, says Hotchkiss. There isn’t any one major tenant absorbing a majority of space in the city.

Industrial rental rates in downtown Los Angeles range from $6 to $7.80 per square foot for older space and as much as $8.50 to $9 per square foot for newer properties. As for vacancy rates, Hotchkiss says that the overall downtown figure is around 5.5 percent. However, vacancy for newer product is closer to 1 percent. For the general L.A. market in 2003, Marcus & Millichap forecasts a 0.70 percent reduction in vacancy as net absorption is expected to surpass new completions.

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