By STEVE BATCHELLER
The third quarter continued to see positive market fundamentals in the Mid-Counties industrial market. The quarter saw strong gross sales and leasing activity totaling 1.9 million square feet, which was up more than 30% from the second quarter.
Net absorption was up by 52% to 478,272 square feet from the prior quarter. Leasing
led the surge with 1.6 million square feet of activity.
Deal velocity continued to rebound. The 56 transactions during the quarter represented a 12% increase from the prior quarter. Building buys by business owners of 365,296 square feet during the third quarter was a welcome rebound as it matched activity for the first and second quarters combined.
Higher interest rates and higher asking prices didn’t dissuade buyers in third quarter. Average asking sale prices of small and large buildings have risen 34% to $130.22 per square foot from just a year ago. Newer sale offerings are continuing this trend of higher asking prices. Some privately owned longstanding offerings are starting to reduce sale prices.
The most notable lease of the quarter was for 200,068 square feet at the Golden Springs Business Center in Santa Fe Springs by Solaris Paper Inc., represented by CB Richard Ellis Group Inc. The building is under construction and is the final building to go up in this 5 million-square-foot, state-of-the-art development on 265 acres in the heart of the Mid-Counties market.
Golden Springs consistently has led the market to new lease rate highs, and this most recent lease with Solaris is a record high for a big box building.
On the supply side, the overall market’s availability rate dropped to 4.9% in the third quarter, a 5.8% decrease from the second quarter, and a 26.7% decrease from a year earlier. The overall vacancy dropped to the lowest level on record at 2.1%. This is a steady decline from 2.3% in the second quarter, 2.5% in the first and 2.7% in the fourth quarter of 2005. From a year earlier, the vacancy rate dropped 46% from 3.9%.
The stable demand and shrinking supply in the Mid-Counties market continues to push sales and lease values to record highs.
Investor demand and money continues to exceed available space in this coveted market. As a result, institutional and private investors aggressively are pursuing stabilized and value-added buildings. The most significant deal in the third quarter was Boston-based Colony Realty Partners’ buy of the 543,431-square-foot Cypress Corporate Center from BKM Development Co. of Costa Mesa.
The center includes 104,654 square feet of primarily new office space leased to VF Corp.’s Vans Inc. The remaining 438,797 square feet in two divisible buildings is up for lease.
Record traffic at the ports of Los Angeles and Long Beach, strong employment in Orange and Los Angeles counties, solid corporate earnings and a stable national economy all provide optimism for continued demand in this strategically located market.
Batcheller is a senior vice president in the Newport Beach office of CB Richard Ellis.
