By JOSH BONWELL
The Mid-Counties industrial sector posted record gross absorption of 10.3 million square feet in 2005.
It’s notable that the absorption is taking place in a market with a third less available space than a year earlier.
Gross activity has remained strong into 2006.
The first quarter marked the ninth consecutive quarter of gross activity of more than 1.5 million square feet.
The industrial sector saw 1.6 million square feet of net absorption in the fourth quarter. The average vacancy rate in the quarter fell 27% to 2.7%, versus a year earlier.
Lease rates were flat at 53 cents per square foot per month in the period.
An early look at the first quarter industrial results shows that the market saw negative net absorption of 328,119 square feet.
The negative absorption mainly is a product of Panasonic of North America vacating its 339,110-square-foot plant on Katella Avenue in Cypress.
There is 286,788 square feet of space under construction and less than 600,000 square feet in the planning stage.
Absorption Rebound
The market is poised to post a rebound in net absorption next quarter because of the lack of space in the pipeline.
Large distribution buildings in the Mid-Counties region have seen a lot of activity thanks in part to the ports of Long Beach and Los Angeles, which see about 40% of the nation’s goods pass through.
The Mid-Counties region has only four buildings larger than 200,000 square feet that are available for sale or lease. All of them are being pursued.
Lease rates and sale prices for industrial buildings are set to climb in all size ranges because of the strong activity.
Landlords, meanwhile, are tightening up on the concession front,the days of free rent and rate concessions have all but dried up.
Sale prices in the first quarter continued their surge from 2005.
Prices for buildings smaller than 20,000 square feet have risen the most.
Properties in that size range are trading hands for more than $120 per square foot for older, functional buildings and for more than $170 per square foot for newer buildings. Those prices are up more than 40% in the past year.
Don’t look for prices to continue to rise at the same pace as they have in the past year.
Strong Sales Market
Still, the sales market in 2006 is set to remain extremely strong due to the lack of available space, long-term interest rates that are low by historic standards and business owners’ desire to invest in Southern California real estate.
Institutional and individual investors are paying top dollar for buildings of all classes, despite a pickup in interest rates.
The Mid-Counties office market saw negative net absorption of 28,834 square feet in the fourth quarter.
The overall vacancy rate fell 17.9% to 8.7%, versus a year earlier, with the lease rate falling 1.1% to $1.88 per square foot.
Bonwell is a senior associate in the Anaheim office of CB Richard Ellis Group Inc.
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