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Thursday, Mar 28, 2024
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Momentum Continues in Mid-Counties Market

New businesses continued to migrate to the Mid-Counties industrial market at the border of Los Angeles and Orange counties in the first quarter as existing businesses expanded, resulting in 256,044 square feet of positive net absorption.

The high demand follows a banner year last year, which had the highest level of positive net absorption in the market since 2005. The momentum, if it continues throughout this year, also will mark the fifth consecutive year of positive net absorption. The industrial market now has all-time low levels of inventory, currently tracking at 1.9% availability and 0.6% vacancy. The year-over-year decline in the supply of available buildings is a staggering 51.6%.

Gross activity no longer serves as a reflection of demand. Absorption was down by 42% from a year earlier. If the trend continues, this year is on pace to average 1 million square feet of positive net absorption, which would be down significantly from the prior year. That’s further evidenced by the restraint on gross activity due to the severe lack of supply—a dilemma we think will continue throughout the year.

Property values are understandibly increasing. The year-over-year average asking lease rate increased 5%, and the average asking sale price rose 9.2%. The average asking lease rate for buildings 10,000 square feet and larger was 63 cents per square foot, per month, up from 60 cents a year earlier. The appreciation is taking place without an influx of new development or available class A product. Thus, the jump in effective rates reflects longer lease terms with more rental increases and less free rent. The good news is that the values are still 10% off the peak set in 2008.

There were several larger lease and sale transactions executed and closed in the quarter. Tool Lots Inc. leased 115,560 square feet of a class B/C building in Cerritos. Packaging Corporation of America renewed its 107,740-square-foot, class B lease in Santa Fe Springs, and Apollo Apparel Group LLC signed a 92,395-square-foot lease at a class A Buena Park building.

There were seven owner-user sales during the quarter. The largest was in Santa Fe Springs, where Martinez Trucking acquired a building it had rented. A noteworthy investment transaction was the sale of Heritage Corporate Center in Santa Fe Springs, a 23-building mixed-use business park totaling 724,154 square feet of industrial, research and development, and office product. The project is on a long-term ground lease; the seller was SteelWave, and the buyer was Kearny Real Estate Co.

It’s clear the Mid-Counties market is starving for new product, though land is scarce in the mature in-fill market. There are three significant projects about to break ground, and their timing appears to be optimum. Overton Moore Properties recently tilted walls on a state-of-the-art, 199,588-square-foot distribution building on an 8.89-acre site in La Mirada. Goodman Birtcher is scheduled to break ground in May at the former Cenco (Powerine) Refinery on a three-building, 1.2-million-square-foot project. Both projects are getting preleasing activity.

Bridge Development Partners LLC closed in December on the 10-acre former Norwalk Dairy Site in Santa Fe Springs at a record per-square-foot price for land in the market. It plans to put up three buildings totaling 231,731 square feet. Duke Realty is scheduled to close on the 21-acre Chevron site in La Mirada, with plans to construct an approximately 470,000-square-foot logistics building.

We are confident that occupiers, investors and developers will continue to seek opportunities in the Mid-Counties market because of its central location in the Southern California basin.

Research and analysis provided by CBRE Research

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