Real Estate Watch: Mid-Counties
Lease Rates Decline While Absorption Improves
By SAM CHU
The Mid-Counties industrial market saw a big rebound in activity in the third quarter, despite the effects of an economy still in the early stages of a recovery.
The market had gross absorption of 1.97 million square feet in the third quarter, accounting for 47% of absorption year-to-date. The results included 1.1 million square feet of absorption for buildings more than 100,000 square feet in the quarter, compared to zero in the first half of 2002.
Still, the external pressure of the weak national and regional economies continued to weigh heavily on the Mid-Counties market. Availability rose slightly in the third quarter to 7% from 6.7% in the prior period. The vacancy rate inched slightly higher to 2.8% in the quarter, up from 2.4% in the second quarter.
Sublease space is a key indicator of a sluggish economy, and it continued to play an active role in the market, comprising about 22.9% of available inventory.
Despite heavy gross activity in the third quarter, net industrial absorption was a negative 119,032 square feet. This factor, combined with the availability of sublease space, placed additional downward pressure on lease rates.
Overall, lease rates have dropped about 10% to 15% below 2001 levels.
What can be expected for the Mid-Counties market, which includes the cities of Santa Fe Springs, Artesia, Bellflower, Buena Park, Cerritos, Cypress, Downey, La Mirada, La Palma, Lakewood, Los Alamitos, Norwalk, Paramount and Whittier?
A bright spot: owners looking to sell their properties should continue to see high demand from investors or tenants hoping to buy at historically low interest rates.
In the lease market, owners that are growing concerned and impatient for a national economic recovery will be aggressive in tenant concessions and incentives.
Demand for space 10,000 square feet to 30,000 square feet should remain relatively stable. Such space accounted for about 70% of gross absorption through the third quarter.
Although activity for larger buildings increased in the third quarter, prospects will continue to be limited beyond the several large leases currently under negotiation.
Chu is a senior associate in the Anaheim office of CB Richard Ellis.
