SIOR Commercial Real Estate Index

siorlogo4cThe Second Quarter 2008 SIOR Commercial Real Estate Index, compiled by the Society of Industrial and Office Realtors (SIOR) in association with the National Association of Realtors (NAR), indicated that commercial real estate markets have not yet begun their rebound to market equilibrium. The national Index, which measures 10 variables pertinent to the performance of U.S. industrial and office markets, dropped for a sixth straight quarter to an overall total of 76.4 points. This point drop placed it 23.6 points below the 100 point criteria that represents a balanced office and industrial marketplace and 43 points below its record high in spring 2006.

The West Region, weighing in with an Index score of 68.4 points, experienced the greatest decline in positive attitudes regarding the state of the office and industrial markets citing the housing downturn as a factor. Respondents from that region are reporting higher vacancy rates, deeper concessions for tenants, meager development activity, and a high rate of pessimism for their three month outlook.  However, this index paints too broad of strokes to accurately assess the condition of the Central Los Angeles Industrial real estate market which generally exceeds the broader commercial market in the West.

The SIOR Commercial Real Estate Index is constructed as a “diffusion index,” a very common and familiar indexing technique for economic measures. Other examples of diffusion indexes include the Index of Leading Economic Indicators, the Consumer Confidence Index, and the Institute of Supply Management’s Purchasing Managers’ Index. In the SIOR Commercial Real Estate Index, a value of 100 represents a well-balanced market for industrial and office property. Values significantly lower than 100 indicate weak market conditions; values significantly higher than 100 measure strong market conditions. The theoretical limits of this Index are a low of zero, and a high of 200, though it is unlikely that such limits would be approached as long as the property markets are operating efficiently.

The Index is based on a survey questionnaire with ten topics. The topics covered are (1) recent leasing activity; (2) trends in asking rents; (3) trends in vacancy rates; (4) subleasing conditions; (5) levels of concession packages in leases; (6) development activity; (7) site acquisition activity; (8) investment pricing levels; (9) the impact of the local economy on the property market; and, (10) the effect of the national economy on the property market. Survey respondents are given five choices. For each topic, five choices are provided, corresponding to conditions that are very weak, moderately weak, well-balanced, moderately strong, or very strong.

Possible Expansion of the Artist Live/Work Area

The City of Los Angeles is currently exploring the expansion of the artist live/work loft area into more industrial areas south of the current area.  The expansion would allow increased conversion of existing industrial buildings in the area to joint live-work uses.   A public hearing was held last week at SCI-Arc on 3rd Street.

Only obsolete industrial buildings should be allowed to be converted.

Recession: First In, First Out?

It’s all but certain the U.S. economy is in a recession, as falling home prices and Wall Street turmoil have put the brakes on consumer spending and stoked unemployment. But California got there first.  With its export businesses, manufacturing sector, professional services and big retail employers, California looks like many other U.S. states, only more so. California’s $1.8 trillion economy — twice the size of India’s and accounting for about 15% of the U.S. gross domestic product — is powerful enough to have ripple effects nationally. It is home to Hollywood, five of 30 Major League Baseball franchises and the largest farming sector in the nation.

California was also at the leading edge of the nation’s recent housing bubble, which is where its current problems started. Home prices in California rose higher and faster than in most of the U.S., and started weakening earlier, in 2005.  As Californians cut their spending, job losses spread from the housing sector to retail stores and auto dealers. Now the state’s unemployment rate is 7.7%, among the highest in the nation.

It’s unclear whether the state, as one of the first to enter an economic slowdown, will be among the first to emerge.

California Statistics
California Statistics

City of Vernon: SoCal’s First Exclusively Industrial City

Vernon was founded and incorporated in 1905 by James J. and Thomas J. Furlong, both ranchers, and John B. Leonis, rancher and merchant. John Leonis was of Basque origin, coming to Southern California in 1880 to work for his Uncle Miguel Leonis whose original 1862 adobe dwelling in Calabasas was designated City of Los Angeles Cultural-Historic Monument #1. John Leonis established his own ranch on unincorporated county land southeast of Downtown. Recognizing the significance of the three major railroads running through the area, he convinced railroad executives to run spur tracks off the main lines and incorporated the adjacent three miles as an “exclusively industrial” city named after a dirt road, Vernon Avenue, crossing its center.

While waiting for industry to develop in the area, the founders of the city thought of marketing Vernon as a “Sporting Town.” In 1907, on land leased from Leonis, Entrepreneur Jack Doyle opened what was billed as the “longest bar in the world.” It had 37 bartenders, 37 cash registers and a sign advising “if your children need shoes, don’t buy booze.” Next door Doyle opened the Vernon Avenue Arena where 20-round world championship fights were held starting in 1908. Soon after, the Pacific Coast (baseball) League built a ballpark with its left field corner abutting Doyle’s bar and its own entrance into the park. The Vernon Tigers won three Consecutive league pennants. Last call for Doyle’s Bar was June 30, 1919 when over 1,000 people swilled their last pre-Prohibition drink. The chamber of commerce now sits atop Doyle’s onetime empire.

After 1919, Vernon went back to being exclusively industrial. Two giant stockyards, one owned by John Leonis, opened with meat packing quickly becoming Vernon’s signature industry. Twenty-seven slaughterhouses lined Vernon Avenue from Soto Street to Downey Road until the late 1960s. Said one longtime Boyle Heights

Resident, “we could smell Vernon in the evenings at our home.”

In the 1920s and 30s, heavy industries such as steel (U.S. and Bethlehem), aluminum (Alcoa), glass (Owens), can-making (American Can) and automobile production (Studebaker) grew in the City. The 1940s and 50s added aerospace contractors (Norris Industries), box and paper manufacturers, drug companies (Brunswig), and food processors (General Mills, Kal Kan). Giant meat packers (Farmer John and Swift) continued to grow. A strong, unionized labor force meant excellent middle class incomes for thousands of families.

In 1932, the City differed with Southern California Edison over industrial rates for Electricity, John Leonis orchestrated a Vernon bond measure to authorize the construction of the city’s own Light & Power plant, which is still operational today. Low-cost power and water, along with low taxes, attracted businesses to Vernon. Later, economical factors including, the free flow of capital and labor across borders had, by 1980, utterly transformed Vernon’s industrial face.

The City’s signature businesses, the slaughterhouses, relocated. Lower-cost producers in the East and Midwest reduced meat packing plants from 27 to today’s two. Bethlehem and US Steel competed unsuccessfully with European and Asian suppliers. Studebaker and American Can are closed. Defense cutbacks negatively impacted Alcoa and Norris industries. Today smaller industrial/commercial establishments including fashion design, garment-making, film production, electronics, and waste recycling are characteristic of the business community in Vernon.

by Pete Moruzzi, 1997.