By JOHN BIVEN
From news broadcasts to dinner party conversations, we are continually reminded of the negative pressures impacting our regional and national economy.
These pressures are taking a toll on the Mid-Counties industrial market. Total sales and leases for the second quarter were 1.3 million square feet, bringing year-to-date activity to 2.1 million square feet,the lowest midyear level since 1992. That’s down 33% compared to the same period in 2007.
This notable shift in activity can be attributed to a variety of factors including corporate consolidation and expense reduction (as evidenced by the dramatic increase in sublease space) and economic uncertainty for business owners, which results in delayed real estate decisions. There also is a lack of quality buildings and new construction available, which could be causing users to wait for new options.
Despite reduced activity levels, several notable transactions occurred during the second quarter including Bunzl PLC’s expansion and relocation into a 178,454-square-foot building in Cerritos, Robert Ahyns Transportation’s sublease of 106,000 square feet in Santa Fe Springs, Ortho Mattress Inc.’s lease of 97,078 square feet in La Mirada, and Innovative Operation Solution’s lease of 75,000 square feet in La Palma.
The quarter saw some 30 lease transactions and six user sales, a favorable increase compared to the 25 leases and four user sales during the first quarter and on par with the 33 leases and four user sales completed during the second quarter of 2007.
As of the end of the second quarter, the Mid-Counties industrial vacancy rate was 2.1% up from 1.7% in the first quarter. The availability rate was 5.1% up from 4.6%. Both vacancy and availability rates for this submarket have been gradually creeping higher since historic lows in early 2007.
Reaction to Economy
A big contributor to this rise in rates is a direct result of sublease space coming to market. Current statistics indicate there is a total of 1.6 million square feet of sublease space actively on the market. This represents an increase of 147% compared to the 630,220 square feet of sublease space that was on the market a year ago. This trend will likely continue until national and regional economic conditions stabilize or become more positive.
Considering the broad impact of the current economic conditions, it is not surprising that market valuations are being impaired. While average asking lease rates have remained flat during the first two quarters of the year at 64 cents triple net, they have managed to post a moderate increase of 3.2% as compared to the second quarter of 2007.
Average asking sale prices have not faired as well during the recent quarter, dipping by 5.3% to $137.83 per square foot as compared to $145.54 during the first quarter. On a positive note, average asking sale prices have actually increased by 5.9% as compared to the second quarter of last year.
It is widely viewed that segments of Southern California are suffering from recessionary conditions and that the economy will remain weak well into 2009 as compared to prior years.
Biven is a first vice president in the South Bay office of CB Richard Ellis.
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