Real Estate Watch: The Mid-Counties Market
Office, Industrial Segments Poised for Increase in Activity
By STEPHEN BATCHELLER
The Mid-Counties industrial market has been one of the most stable industrial areas nationwide for the past three decades
The area,Santa Fe Springs, Artesia, Bellflower, Buena Park, Cerritos, Cypress, Downey, La Mirada, La Palma, Lakewood, Los Alamitos, Norwalk, Paramount and Whittier,cover about 125 million square feet of space. It is among the most central areas for distribution and serving the Southland’s 16 million people.
The Mid-Counties area’s location at the center of the 1.5 billion-square-foot Southern California industrial market accounts for its historic stability. The market’s labor base and transportation facilities have enhanced this stability. There are about 21,977 companies within the area employing more than 283,907 people. With an extremely constrained supply of available land, the ability to construct new class A space to meet demand is limited at best. As a result, existing class A space enjoys a competitive advantage and tends to lease quickly at higher rates than those enjoyed by the rest of the market.
While the Mid-Counties industrial market has been fortunate not to have seen the effects of Sept. 11 and the national recession as severely as some regions, it has not been immune to the downturn. Like other areas, Mid-Counties has seen a reduction in gross absorption, which peaked in 2000 as the national economy reached its zenith. A comparison of total gross absorption in 2000 vs. 2001 reveals a reduction of 2.6 million or 27%. Through the first quarter, annualized gross absorption was running at a pace of 4 million square feet, a 43% reduction from a year earlier.
However, current user activity is far greater than it has been since the second quarter of 2001. As a result, we expect to see a significant increase in both gross and net absorption in the third and fourth quarters. Remarkably, the area’s industrial vacancy rate remains a low 2.5%. As a result, despite the drop in gross absorption, lease rates in most size categories have not declined significantly.
What can be expected in the Mid-Counties industrial market for the rest of 2002? Overall, levels of supply will remain limited despite an increase in product available for sublease. Demand will remain stable for buildings smaller than 50,000 square feet. Prospects for larger buildings will continue to be limited, but activity in this segment will increase in the second and third quarters. Owners will be aggressive in attracting tenants in the face of national economic uncertainty by stimulating leasing activity with concessions and broker incentives. User sale activity will remain strong, as long as interest rates remain near historic lows. Investment demand will remain strong, due to a shortage of investment properties for sale and the market’s strong fundamentals and historic stability.
Batcheller is a Senior Vice President with the Institutional Industrial Group for CB Richard Ellis in Southern California.
