In the first quarter, the Mid-Counties industrial market continued to show signs of life.
The buzz phrase that often was heard was “activity has picked up.”
This increase in activity did not come without struggles, as many landlords had to discount rates and provide large concessions to sign short- and long-term leases. We also can’t say this is an ongoing trend, but we will be tracking it closely in the next few quarters.
During the first quarter, there were 42 user transactions, 34 leases and eight sales, which accounted for an 82.6% increase over the 23 transactions that were made in the first quarter of 2009.
These transactions accounted for about 1.5 million square feet of space.
The bulk of the deals were for smaller buildings or space—10,000 to 40,000 square feet. This marked a change from recent history where smaller space was responsible for fewer deals.
There were four transactions larger than 100,000 square feet: a 36 month lease with Saddle Creek Corp. at 6565 Knott Ave. for 298,175 square feet; a 172,967-square-foot expansion by Solaris Paper Inc. with ProLogis in Buena Park; a short-term deal with Wal-Mart Stores Inc. at 14911 Valley View Ave. for 155,408 square feet; and a renewal with Cort Furniture at 14350 Garfield Ave. in Paramount for 105,767 square feet.
The Mid-Counties market saw absorption for the first time in nine quarters; albeit only 6,014 square feet. This is not necessarily a trend, but it is an encouraging change.
That absorption helped to stabilize the vacancy and availability rates that stand at 4.4% and 10.7 %. The vacancy rate is up 33.3% since the first quarter of 2009 and availability is up 57.4%.
Tenants are coming off the sidelines in order to take advantage of unprecedented offers from landlords.
Landlords competing for deals with a smaller pool of prospects has led to a major change in asking rental rates during the past year.
Average asking triple net lease rates for buildings 10,000 square feet and larger are 52 cents per square foot per month, which is 12% less than the 59 cent average asking rate from the first quarter of 2009.
Effective lease rates are even less as landlords continue to offer significant concessions to attract tenants.
Sales
Average asking sale prices have experienced similar declines, dropping 14% to $108.15 per square foot in the first quarter from $125.62 per square foot one year earlier. There were a total of seven user sales and one investment sale during the first quarter, with the largest topping out at 40,000 square feet.
Transaction prices were varied. The lowest was $70 per square foot for two 19,000-square-foot buildings that sold to a user in La Mirada. The highest was $139 per square foot for a well-maintained 16,885-square-foot sale-lease-back in Cerritos.
We anticipate a continued dramatic spread in prices depending on the quality of buildings, as users looking to buy have limited choices for higher-quality space. Predictably, investment and user sales continue to be slow due to the lack of financing and continued compression of lease rates. There also are no new construction projects in the near future.
Moving into the second quarter, we expect to see continued activity in the leasing market and sluggishness in the sale market.
In the near future, it will continue to be a tenant’s market and we will be watching for a positive trend in absorption.
Moreno is an associate in Anaheim office of CB Richard Ellis Group Inc.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
