Fourth-quarter gross activity for the Mid-Counties industrial market was nearly 1.7 million square feet, a 2.5% increase over the 1,637,496 square feet recorded in the fourth quarter of 2012.
The activity, as in the same period a year earlier, was led by transactions in the range of 10,000 to 99,999 square feet, generating nearly 1.1 million square feet, an 8.4% increase over the 971,393 square feet recorded one year ago.
It’s clear the market has stabilized and is now positioned for rental growth after two consecutive years of strong gross activity and positive net absorption.
Levels of supply have decreased to equilibrium, and asking lease values continue to increase. The year-over-year decline in the average asking sale price is misleading because the supply of buildings available for sale is so limited that most have functional challenges.
Transactions
Transaction volume during the fourth quarter was stable, with 42 gross leases and user sales compared to 44 in the fourth quarter of 2012. The majority—39 of 42—were deals of less than 100,000 square feet. The continued resurgence of smaller requirements is encouraging for the market, as that segment was most adversely affected by the financial crisis and recession.
Activity among larger occupiers was lower, with just three deals of more than 100,000 square feet versus five a year earlier. The larger deals included Michael Kors expanding into an additional 304,700 square feet in the City of Industry; Katana Racing Inc. growing from 71,000 square feet in Cerritos to 221,415 square feet in La Mirada; ALS West Coast Logistics expanding from 39,000 square feet in Cerritos to 100,000 square feet in Santa Fe Springs; and QSPAC Industries Inc. growing from 35,280 square feet in Cerritos to 95,135 square feet in Santa Fe Springs. Activity among larger occupiers improved in the new year.
The rise in demand of users of more than 100,000 square feet is being answered with a recent 1.2-million-square-foot wave of speculative development of primarily big-box buildings.
Santa Fe Springs
Golden Springs Development Co. completed construction on its 449,000-square-foot distribution center in November. Western Realco has presold two smaller buildings totaling 93,856 square feet at premium prices.
All of those projects are in Santa Fe Springs, where additional development is expected in the near future.
Stronger economic growth should fuel transaction volume this year and result in a continuation of declining vacancy and availability rates, bringing appreciation in lease rates and sale values.
The fundamentals of the Mid-Counties industrial market, strategically situated at the border of Los Angeles and Orange counties, make it one of the strongest industrial submarkets in Southern California and the country.
Research and analysis provided by CBRE Research.
