By STEVE BATCHELLER
The Mid-Counties industrial real estate submarket enjoyed an unseasonably hot summer.
Activity typically falls off in the summer as companies delay deals while key executives vacation. But in the third quarter, leasing and sales activity not only set a record for the period, but recorded the highest level of quarterly activity in the history of the Mid-Counties submarket at 3.45 million square feet.
Leasing activity led the surge with 2.6 million square feet.
The increase in activity also is reflected by the 70 transactions spread across all building size segments. The heavy deal volume compares to 65 transactions in the first and second quarters combined.
Net absorption also rebounded with 767,411 square feet as the Mid-Counties region saw more demand in the market from companies in neighboring areas.
Highlights included St. George Warehouse from Compton preleasing a 454,826-square-foot cross dock and Bravo Sports from El Monte and Cypress leasing 154,000 square feet, both at the Golden Springs Business Center.
Furniture company Living Spaces went against the typical flow of traffic and expanded from Rancho Cucamonga into a recently renovated 277,564-square-foot building that used to house Crown Cork and Seal.
With depleted supply in neighboring submarkets, such as South Bay, Commerce/Vernon, San Gabriel Valley and Orange County, and increased fuel prices making the infill market more attractive, the Mid-Counties region should see an increase in demand,companies are searching for more alternatives outside their ideal location before making final lease or purchase decisions.
This activity has driven the availability rate in the Mid-Counties to the lowest level in more than two years at 6.7%.
The actual supply of space for businesses that want to move in right away is even lower as shown by an existing (not including buildings under construction) availability rate of 5.3% and a true vacancy (ready for immediate occupancy) rate of 3.9%.
Institutional investors continue to covet industrial real estate in the Mid-Counties’ historically stable and strategically located market.
Their enthusiasm is shown by sub-6% capitalization rates and a willingness to buy vacant buildings, which means buyers are OK with taking on renovation and releasing risk.
ING-Clarion highlighted the quarter with its acquisition of the 504,430-square-foot Whittier Distribution Center as a part of a larger RREEF portfolio.
Prologis was rewarded for its aggressive pursuit and acquisition of the 221,415-square-foot former California Distribution building in La Mirada. Prologis has preleased the building’s front 125,415 square feet for seven years.
Past activity and the number of buildings in escrow raise expectations for even more investment activity in the Mid-Counties during the rest of the year.
The diminishing supply and strong demand are pushing sale and lease values to record levels.
Strong employment numbers, record container traffic at the ports of Long Beach and Los Angeles and historically low interest rates suggest that the momentum will carry over and push sale and lease values through the fourth quarter and well into 2006.
While this scenario is likely, the high price of gasoline is taking its toll on consumer confidence, which could be a factor since consumer spending has been the fuel for the national economy.
In the final week of the otherwise bright third quarter, the consumer confidence index dropped 18.9 points, marking the largest month-to-month decline since 1990.
So while the fourth quarter is under way amid some optimism, there are some economic pressures that bear watching.
Batcheller is a senior vice president in the Anaheim office of CB Richard Ellis Group Inc.
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