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2/08/10
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SoCal real estate experts expect greater stability for commercial real estate in 2010 following a turbulent 2009 often marked by “frozen’ activity and continued downward trends in lease and sale rates. This was the message echoed by a blue ribbon panel of leading brokers headlining the 17th Annual “Market Review and Forecast” event presented at the end of January by the AIR Commercial Real Estate Association in downtown Los Angeles.
Nearly 250 people turned out for the highly regarded event, which was presented in a submarket-by-submarket format that better clarified how each area affected the other. The panel was moderated by Bart Reinhard, a Senior Vice President with CB Richard Ellis and also a past President of AIR.
Though reporting that overall vacancy in Orange County is at its highest level since 2003 and asking rates are down 17.7% from a year ago, Rick Ellison, Executive Director, Industrial Properties, Cushman & Wakefield in Irvine, said industrial vacancy is healthy in the 5-6.5% range, compared to double digits in 1991.
“The good news is that things are not getting worse. The gap between asking lease rates and tenant expectations is narrowing, and there’s already an increase in user/buyer activity in 2010 which we think will continue,” Ellison said.
Addressing the Central L.A. submarket, Paul Sablock, SIOR, Executive Vice President, Logistics and Industrial Services, Jones Lang LaSalle Americas Inc, said his market, showing a 4.2% industrial vacancy, is “starting to get some traction”. “We expect to hit the bottom of the market toward the end of the third quarter and vacancies will slow. This will bring clarity and stability and is sparking a quicker start than 2009,” Sablock stated.
Scott Caswell, Senior Vice President, Delphi Business Properties Inc, said that while vacancy will increase and prices will continue to lower in the San Fernando Valley/Valencia market, they will do so less drastically in 2010. “We will experience more tenant movement as companies have passed the 9/11 wait and see mode and will get in motion to make moves that best place them for the future. There’s already a big turn as companies are making herd decisions,” Caswell said.
Citing the San Gabriel Valley submarket’s demographic strength and solid manufacturing base, Dennis Sandoval, Executive Vice President/Principal of DAUM Commercial Real Estate Services, emphasized that “everyone is looking much closer at the cost of occupancy and sizing”. He added that looming environmental regulations are a concern in that market, while the proposed football stadium will create a positive economic impact. He noted many area leases are expiring and people will be making decisions this year.
Commenting that there are “lots of deals out there that will be hard to turn down” in Ventura County during 2010, Paul Farry, Senior Vice President CB Richard Ellis, said virtually no land sales and new construction took place in 2009, and building availability continues high. “We’re telling landlords to roll over tenants, yet we see activity picking up, particularly laterally in 2010 following a 10-15% drop in lease rates and a 5-10% drop in sales rates.”
Forecasting lease rates that will decrease or remain flat in the Mid-Counties submarket with increased concessions, Cliff Fincher, SIOR, of Lee & Associates said this area will see fewer transactions in 2010. He added that building sale prices are down 20% - $45%, and vacancies and availability are up, though industrial vacancies hover around 5%.
Steve Bellitti, Senior Vice President, Colliers International, said the same market dynamics that made the Inland Empire the nation’s best market in 2007 – state-of- the-art buildings at rock bottom prices – will spark its revival this year. “2010 is expected to be a better year as market forces continue to force a recovery upon us. Vacancy rates are projected to level out and rents will stabilize. The Inland Empire has been very successful in drawing demand from other regions in the L.A. Basin and this trend will continue,” Bellitti said.
He added that market clarity appeared in 2009 and vacancies have stabilized in the Western portion of the market along with pricing. “We’ll see a floor in lease rates soon,” he said. He said the big question mark is the Eastern region.
David Drummond, SIOR, Senior Vice President, Colliers International, said vacancy rates in the South Bay have steadily increased over the past year in concert with big decreases in port activity. “Though 2010 is expected to be another rough year for our submarket, we look for a turnaround as port volume levels and rents decrease,” Drummond said.
Stating that the first eight months of 2009 were characterized by fear in the West Side industrial market, Luke Staubitz, SIOR, of The Klabin Company, said limited demand started to re-enter the market around Labor Day 2009.
“There are preliminary signs of price stabilization in leases and sales. Transaction volume, which began building last September, will continue to increase throughout the year with tenants holding the pocket aces. We will also return to transaction volume valuations in the investment arena,” Staubitz pointed out.
As for the West Side’s office market, Keith Fielding, also of The Klabin Company, declared that lease rates are down 17% and sales prices 25%. “Landlords are aggressively pursuing renewals with term flexibility. There will be continued price compression and thawing in capital markets. However, there’s a lot of money on the sidelines waiting to buy, but prices are not yet where buyers want them. An improved economy is needed to spark significant activity,” Fielding concluded.
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