Los Angeles and Inland Empire Industrial Vacancy Rates Among Lowest in Nation

Grubb & Ellis Co., one of the leading providers of integrated real estate services, reported March 5 that industrial vacancy rates in the Los Angeles and Inland Empire are among the lowest in the nation.

Los Angeles County, with nearly 1 billion sq. ft. of industrial space, posted a vacancy rate of 2.4 percent at year-end 2004, the lowest in the nation. The Inland Empire, with an inventory of approximately 300 million sq. ft., ended the year with a vacancy rate of 4.4 percent, the third lowest in the nation. Also ranking in the top five tightest markets were Bakersfield, at No. 2 with 4 percent, and Oakland-East Bay, at No. 5 with 6.5 percent.

"Diverse forces are affecting the U.S. industrial market," said Bob Bach, national director of market analysis for Grubb & Ellis. "Growing container traffic through the ports of Los Angeles and Long Beach is fueling demand for space in Los Angeles and the Inland Empire. However, tight land supplies are limiting construction in Los Angeles."

There is a total of 7.2 million sq. ft. of industrial space under construction in Los Angeles. The San Gabriel Valley leads with market in new construction with 2.5 million sq. ft., followed by the South Bay with 1.8 million sq. ft. and the Mid-Cities area with 1.2 million sq. ft.

"All spec projects are attracting a great deal of interest, especially for-sale projects," said Rick Sheckter, senior vice president with Grubb & Ellis' San Gabriel Valley office.

An example of a market with huge demand and not enough product to meet that demand is the South Bay, said Terry Reitz, senior vice president with Grubb & Ellis' South Bay office.

The South Bay sub-market, which is closest in proximity to the ports, recorded record sales and leasing activity in 2004 of 17 million sq. ft. and a vacancy rate of 2.6 percent. In the market tracked by Grubb & Ellis' World Ports Industrial Markets Report, a subset of the South Bay inventory consisting of 102 million sq. ft. of industrial properties over 50,000 sq. ft. in the ports of Los Angeles and Long Beach Market area, there is only 700,000 sq. ft. of Class A space available. Only 1.1 million sq. ft. of space is under construction and half of that is pre-leased.

"With land in such short supply, we're seeing redevelopment of existing buildings to transform them into state-of-the-art logistics/distribution facilities," Reitz said. "We're currently working with AMB Realty on two such projects."

The Inland Empire has 15.3 million square feet of space under construction. The market leader is Fontana with 2.8 million square feet, followed by Chino with 2.6 million sq. ft., Riverside with 2.6 million sq. ft. and Ontario/Mira Loma with 2 million sq. ft.

While the majority of construction is currently in the Western Inland Empire, that trend is changing, according to Bruce Springer, Senior Vice President with Grubb & Ellis' Ontario office. Large-scale development, prompted by a land shortage in the west, is moving east. Rialto was on the leading edge of this geographic shift in 2004 when Target announced plans to build a 1.6 million-square-foot warehouse there on 220 acres in

Expect a greater concentration of activity (led by build-to-suit and owner-built projects) along the I-215 corridor (Moreno Valley/Perris, near March ARB) as larger land parcels along the I-10 dwindle (especially in Riverside) and land prices escalate.

DHL's decision to establish its West Coast Cargo hub at March will also serve as a catalyst to attract development interests as high-end manufacturers and sophisticated distribution firms will have even better access to overnight delivery capability.