All posts by singlemalt

Native Angeleno and Industrial real estate agent since 1994.
Market Trends & Indicators

Industrial Activity Slow But Steady

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The Southern California industrial market continues to exhibit consistent demand for tenant space and strong occupancy levels.   The five-county area, which consists of approximately 1.7 billion square feet of industrial space, maintained a low vacancy rate averaging approximately 3%.

The economic climate is posing many challenges to the Los Angeles county as well as the Industrial Market;p however, the fundamentals remain in place for strong performance in the marketplace.
Capitalization Rates for industrial investment properties hovered just below six percent.  Vacancy remains low in the 3-5% range, but several points higher in the Inland Empire.  Many brokers have seen a 20-30% decline in transaction volume and demand.

More specifically, Gross Absorption is 50% compared to a year ago, with 2008 Q1 at 2.2 million versus 2007 Q1 at 4.1 million for the Central Los Angeles area.  The Central Los Angeles Market is the largest industrial base in Los Angeles County.  The Central Market remains one of the tightest and strongest submarkets in the region with little if any new construction due to the high cost and low availability of land.

To some degree, reduced container traffic has contributed to the diminished demand.  Containers handled at the ports of Los Angeles and Long Beach were down 5.6% and imports sunk 5.9%, while exports increased 22%.  Lease rates have held steady though.  Although, tenants are demanding more concessions in the form of free rent and tenant improvements.

Market Trends & Indicators

CMBS Market in the Dumps!

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Investors have showed minimal appetite for commercial mortgage backed securities (CMBS) in recent times with only $10 billion in US CMBS issues in Jan-Apr 2008. Volume is a fraction of the $79 billion in bonds that sold during the first four months of 2007 according to Commercial Mortgage Alert.  The general consensus at the Commercial Mortgage Securities Association meeting in New York last week was that an estimated $50 billion of CMBS will be issued in 2009 versus $224 billion in 2007. This volume would put production in line with 2002 levels of $52 billion.

Experts say a likely upswing won’t occur until early 2009 at best at which point CMBS bond prices should be stable enough for investors to jump back in.  However, CMBS fundamentals are quite healthy and the delinquency rate is only 0.35%!

As a result of the credit crunch, total commercial real estate transaction volume is off 74% YTD as of April 2008 compared to 2007 levels. Until capital is more readily available transaction volume will likely remain slow.

Food Industry

New Meat Processing Facility at Cal Poly

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The J and G Lau Family Meat Processing Center is a state-of-the-art facility located on the Cal Poly campus in the heart of one of the most beautiful cities in California – San Luis Obispo. From harvesting to packaging, this over 13,500 sq. foot center will enable all stages of meat processing in the safest possible environment. Beyond the ordinary classroom, students will experience their education in this state-of-the-art Meat Processing Center that is as technologically advanced as the professional world they will enter. Intended as a space where the lines are blurred between industry and education, the Meat Processing Center will allow companies to utilize test kitchens for product development alongside Cal Poly students and faculty. With this kind of vision, Cal Poly graduates will enter their professions as leaders, innovators and experienced problem solvers.

With the meat industry constantly emerging, such an advanced facility is vital to preparing our future leaders. This is your opportunity to contribute to one of the finest meat processing centers and help guarantee a place where past principles and modern ideas will join forces to improve education and raise the bar of meat industry standards.

Market Trends & Indicators

Rate of Return

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The 12 month trailing average for capitalization rates in Los Angeles County is five and eight-tenths percent (5.8%) for industrial properties.  This rate of return is only a few percentage points higher than competing commercial real estate investments such as retail, multifamily and office.  Industrial properties remain to be a clear favorite among sophisticated investors.

In the state of California, the Los Angeles area completed $4.5 billion in commercial property transaction volume while the other major regions of California typically range from $.2 to $1.6 B.

Food Industry

Los Angeles Downtown Industrial District

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The Los Angeles Downtown Industrial District (LADID) covers 44 blocks, a district with boundaries roughly between Third (on the north) and Eighth and Olympic (on the south), San Pedro (on the west) and Alameda (on the east) Streets. Established as a Business Improvement District (BID), this manufacturing and wholesale District is comprised of mostly seafood, fresh and frozen produce, cold storage and other food related services.  Over 600 properties lie within the LADID boundaries. It encompasses a 36 block district between Fourth (on the north) and Eighth (on the south) Streets, San Pedro (on the west) and Alameda (on the east) Streets.

The District is the hub of the food chain in Southern California and hosts the Los Angeles Wholesale Produce Market, which has 550,000 sq. ft. on 30 acres. It is the second largest produce market in the United States generating annual revenues of $2 billion.  The historic Fisherman’s Outlet is just one of several great restaurants that attract thousands of customers daily.  Dozens of garment and printing businesses also thrive in the district.

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