Current Events in the World of Industrial Property

We have read the Quarter 1 Los Angeles industrial real estate market reports from CBRE, VOIT and Grubb & Ellis.

Here is a snapshot.

Vacancy has increased for the 10th consecutive quarter. “During the quarter, the Greater Los Angeles industrial market experienced a direct vacacy jump from 3.0% at the end of the fourth quarter 2009 to 3.5% at the end of the first quarter 2010”-CBRE. “As expected, market growth has been negative as more tenants reduced their occupancy needs or vacated existing space.”-CBRE.

Average lease rates have continued to fall but are slowing down compared with 2009 quarter over quarter numbers. They are currently at $.55 gross. They peaked at $.72-.75 gross in the first quarter of 2008.

Short term transactions are up as tenants are taking advantage of the soft market and available space. Tenants are re-negotiating their current leases. As availability is high, tenants have the ability to re-negotiate their current leases with a high success rate. These new short term leases have fueled activity as “A total of 1.5 million sf was leased in Q1.”-Voit. As the market strengthens, these short term deals will be re-signed at higher fair market prices.

Overall, we have begun to see a slowdown to the bottom. Unemployment was down for the first quarter in over a year; coming in right under 10%. According to a recent report by Economy.com, “Los Angeles is emerging from a deep recession. Job cuts continue but are increasing at their slowest rate since the first half of 2008. In a sign of turning fortunes, producers of industrial and transportation equipment are beginning to receive increased orders and will renew hiring by the end of next year. The areas economic recovery will continue to grow moderately in 2010 before picking up strength in 2011.”

“The drivers for industrial space have been improving for several months including the ISM manufacturing index, freight shipments, imports and exports, inventory restocking and retail sales.” -Grubb & Ellis. We feel the market is seeing signs of recovery.

In the end, retail sales will drive back employment and consumer confidence. Consequentially these effects will lead to a recovery in the industrial market. Companies will first re-occupy the port and then slowly move to the infill markets.

We would like to hear your thoughts and opinions. Please send us an email to info@odonnellgroup.com. Follow us on Twitter @odonnellgroup.

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