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Friday, Jun 9, 2023


Are we at the bottom yet?

Undeniably, the first half of 2009 presented continued challenges. But there are glimmers of hope in the national economy.

The unprecedented economic crisis seen in the second half of 2008 has given way to some relatively favorable indicators.

The widespread fears of a global depression have subsided. Consumer spending actually rose at an annualized pace of about 1.5% in the first half. Business spending also is improving as capital goods orders have increased by nearly 18% since January.

As a result, recent surveys of manufacturing and service industries have turned favorable after their recessionary lows. There is hope, and a brighter day is on the horizon. Unfortunately, though, demand for industrial real estate, like employment, is lagging.

In the second quarter, there only were 21 leases or sales in the Mid-Counties industrial real estate market, down from 36 a year earlier and 37 two years earlier.

Among the deals, none were more than 100,000 square feet. There were eight at more than 40,000 square feet including four user sales, two subleases, an existing tenant contraction and an existing tenant expansion.

As a result, gross absorption was 685,822 square feet, down 37% from the 1.2 million square feet logged in the second quarter of 2008 and off 51% from two years earlier. A corresponding dramatic increase in supply resulted in negative absorption of 944,261 square feet.

The overall availability rate increased 33% to 9.1% at the end of the second quarter from 6.8% at the end of the first quarter. That’s the largest quarter-to-quarter increase since the first quarter of 2001. At 9.1%, this marks only the second period on record for this market to eclipse the 9% level.


Continued weak demand and more space is having an adverse effect on lease and sale values. Gross absorption only has been 3.9 million square feet in the past 12 months as compared to the record high of 10.3 million square feet set in 2005.

This has resulted in many buildings remaining available and vacant for extended periods of time. This mounting pressure combined with the uncertainty of recovery has led private and institutional owners to reduce prices and aggressively pursue tenants.

The average asking lease rate dropped to 56 cents per square foot, down 5% from the first quarter and down 12.5% from a year earlier.

Asking sale prices are down to an average of $115 per square foot from $125 per square foot in the previous quarter and $138 per square foot a year ago, a 16.7% decrease from 2008. Actual deal values are even less.

As leasing concessions have risen, the average effective rate for leases of more than 10,000 square feet has decreased 17% from the peak of 64 cents per square foot in 2008.

Sales were quiet in the first half of the year. There were only two leased sales closed, totaling 59,747 square feet including: AMB Capital Partners LLC’s 23,313-square-foot Bell Ranch flex-tech building in Santa Fe Springs at a 7.96% capitalization rate; and a 10-unit, 36,434-square-foot multitenant park in Downey at an 8.25% capitalization rate.

A relative increase in investment sale activity is eminent with notable closings scheduled in the third quarter.

McGeagh is a senior vice president in South Bay office of CB Richard Ellis.

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