|The Greater Los Angeles region is currently the strongest industrial market in the nation, with industrial real estate outperforming all other real estate classes in the four-county LA region. At least that’s the general sentiment according to the industry experts who spoke at the 20th Annual Real Estate Market Review and Forecast event presented by the AIR Commercial Real Estate Association this past January 23rd.
The over 200 people attending the highly-regarded annual event heard some additional good news: real estate was looking better to Wall Street, with both CMBS and REITs reporting improvement, according to economist Everett Allen Greer, managing member, Greer Advisors LLC. REITS, in particular, “have taken off like a rocket,” the economist said.
Greer underscored that out of 55 markets nationally, L.A. was number one in terms of lowest vacancy (5%). He cautioned, however, that property markets in First Quarter 2013 could be harmed by unpredictable events in both the world economy, such as ongoing crises in the Euro-Zone, and at home by uncertainty surrounding the federal budget and possible strikes at the Ports of Los Angeles and Long Beach.
An industry panel made up of brokers, developers and a legal expert was generally upbeat. Rob Antrobius, senior vice president, market officer-Los Angeles for Prologis, said that demand for industrial space was continuing to rise throughout the region. “Although newer, Class A buildings have dominated the market in recent years, Class B has more than bounced back,” he said.
Antrobius also reported that owner-user sales are growing in popularity. “Our tenants are telling us they want to buy,” he said.
In L. A. County, industrial real estate values can be expected to rise, according to John McMillan, SIOR, executive director-industrial brokerage, Cushman & Wakefield of California, Inc. He pointed out that lease rates have not increased for several years, while demand continues to increase and the amount of land to develop is limited. “Rates are going to pop eventually,” he said, adding: “There’s nowhere to go but up.”
The San Fernando Valley is one of the stronger submarkets in L.A. County, reported Brett Warner, principal, Lee & Associates-LA North. Prospective tenants are currently “more stable, more confident and may be interested in making a long-term commitment,” he said. The Valley, Warner added, may appeal to investors because there’s room for rents to rise. “Rates have not peaked and demand will drive rates up,” he said.
Demand for industrial space is also high in Orange County, particularly for larger, Class A buildings, according to Louis Tomaselli, senior managing director, industrial advisory, at Jones Lang LaSalle. He pointed out that the Irvine Co. industrial portfolio is virtually 100 percent leased up.
The industrial market is strong enough in Orange County to justify “spec” construction of industrial buildings, which has been a rarity on the market since the 2007-08 economic crisis, Tomaselli said. “The guys who went ahead to build ‘spec’ buildings are the winners in this cycle,” he declared.
As with Orange County, demand is strongest in the Inland Empire for the newest and largest buildings, according to Peter McWilliams, managing director-industrial services for Jones Lang LaSalle in Ontario. “The capital isn’t there for small deals,” he said. Developers, McWilliams added, are concerned about the dwindling amount of land left to develop. Even in infill locations, he continued, “there’s hardly any dirt.”
If prospects for leasing and sales are looking up for First Quarter 2013, so are new paperwork requirements. As of January, state law requires landlords to file regular energy audits for all buildings of 50k sf or more with the federal EnergyStar agency, as well as the California Energy Commission, reported panelist Elizabeth Watson, a partner in the law firm of Greenberg, Glusker. Unlike similar law in New York State, however, the California benchmarks will not be made public.