LA Market Quarterly Overview: Industrial / Third Quarter 2008 / Quarterly Change - Pg 2
Los Angeles County accounts for nearly 9 million
people in the Southern California commercial real estate
market, occupying 180 million sq.ft. of office space and
900 million sq.ft., of industrial space. Office and industrial
space make up the backbone of the professional and industrial
base that houses the southern California economy. As the
economy fluctuates, national market indicators, such as
employment figures, can affect the local economy and for
example, jobs are gained or lost. Likewise, the need for
office or industrial space follows these trends, albeit
with some lag. By following these market indicators, you
as a tenant in the can position your purchasing power to
your advantage and make market conditions work for you!
Key indicators include:
Los Angeles is a composition of seven distinct sub-markets
for office and industrial space including: Downtown Los
Angeles, the Tri-Cities, the West Side, Mid-Counties, San
Fernando Valley, San Gabriel Valley and South Bay. Each
sub-market is again divided into territories that include
superior locations and less preferable ones. On a product
level, office and industrial buildings range from "A"
Class to "C" class ("A" being most desirable)
with newer buildings (Construction) often providing state
of the art facilities and amenities that demand a higher
market leasing rate.
By comparing the year-on-year percentage changes in the
four key indicators, a tenant can project how landlords
in the market may react, more or less favorably, to a proposal
to lease space. Keep these four key indicators in mind when
researching local markets to position your company in the
best light and take advantage of the market!
RENTAL RATES
The average quoted asking rental rate for available Industrial space was $8.78 per square foot per year at the end of the third quarter 2008 in the Los Angeles market area. This represented a 0.7% increase in quoted rental rates from the end of the second quarter 2008, when rents were reported at $8.72 per square foot.
The average quoted rate within the Flex sector was $17.94 per square foot at the end of the third quarter 2008, while Warehouse rates stood at $8.28. At the end of the second quarter
2008, Flex rates were $17.31 per square foot, and Warehouse rates were $8.22.
DELIVERIES AND CONSTRUCTION
During the third quarter 2008, 21 buildings totaling 984,493 square feet were completed in the Los Angeles market area. This compares to 35 buildings totaling 812,723 square feet
that were completed in the second quarter 2008, 14 buildings totaling 459,891 square feet completed in the first quarter 2008, and 1,908,552 square feet in 28 buildings completed in the fourth quarter 2007.
There were 2,967,578 square feet of Industrial space under construction at the end of the third quarter 2008.
Some of the notable 2008 deliveries include: Washington Food Center, a 290,620-square-foot facility that delivered in third quarter 2008 and is now 48% occupied, and 9220 Hall Rd, a
193,709-square-foot building that delivered in second quarter 2008 and is now 2% occupied.
The largest projects underway at the end of third quarter 2008 were Paramount Distribution Center - 14900 Garfield Ave, a 551,897-square-foot building with 100% of its space preleased,
and South Bay Distribution Center - Bldg 5, a 270,764- square-foot facility that is 0% pre-leased.
INVENTORY
Total Industrial inventory in the Los Angeles market area amounted to 1,082,206,479 square feet in 34,972 buildings as of the end of the third quarter 2008. The Flex sector consisted
of 72,437,741 square feet in 2,936 projects. The Warehouse sector consisted of 1,009,768,738 square feet in 32,036 buildings. Within the Industrial market there were 5,366 owner-occupied buildings accounting for 215,898,005 square feet of Industrial space.
SALES ACTIVITY
Tallying industrial building sales of 15,000 square feet or larger, Los Angeles industrial sales figures fell during the second quarter 2008 in terms of dollar volume compared to the first
quarter of 2008.
In the second quarter, 79 industrial transactions closed with a total volume of $465,129,410. The 79 buildings totaled 3,685,404 square feet and the average price per square foot
equated to $126.21 per square foot. That compares to 65 transactions totaling $492,983,957 in the first quarter. The total square footage was 4,327,317 for an average price per square foot of $113.92.
Total year-to-date industrial building sales activity in 2008 is down compared to the previous year. In the first six months of 2008, the market saw 144 industrial sales transactions with a
total volume of $958,113,367. The price per square foot has averaged $119.57 this year. In the first six months of 2007, the market posted 235 transactions with a total volume of $1,507,484,227. The price per square foot averaged $114.98
.
Cap rates have been lower in 2008, averaging 5.55%, compared to the first six months of last year when they averaged 6.12%.
One of the largest transactions that has occurred within the last 4 quarters in the Los Angeles market is the sale of 6 buildings in the Vernon Business Park located in Vernon. This 571,988
square foot industrial building sold for $80,100,000, or $140.04 per square foot. The property sold on 9/12/2007, at a 4.30% cap rate.
