Southern California Industrial Real Estate Blog

Secondary and tertiary markets benefiting from the demand for new industrial space…

January 21, 2007 on 11:11 am | In FASCINATING INDUSTRIAL REAL ESTATE INFORMATION, FASCINATING INFORMATION, FUNNY...MONEY, Investment Opportunities, LIGHTS…CAMERA…TRANSACTION, New Developments, Uncategorized | 18 Comments

EVERYONE WANTS INDUSTRIAL REAL ESTATE

Whew! Let’s rave - the demand for Industrial warehouse and distribution space has brought the national industrial vacancy rate down to a 5-year low of 9.7% - and a local vacancy rate of about 5 percent. The average vacancy rate in the nation’s 30 leading distribution markets at mid-year was down .8 percent to a solid 8 percent from the mid-year 2005 rate of 8.8 percent, observes the most recent Commercial Real Estate Outlook from the National Association of Realtor’s Commercial Alliance.
 
“Markets like Southern California, which are heavily dependent on distribution activity, have done well and will continue to do so,” confirms Jim Sullivan, principal at the real estate securities research firm Green Street Advisors. “The improving economy will only help that situation, which is already strong.”
 
In 2006, a record 204 million square feet of space will be added to the nation’s industrial real estate market. Much of this new space is designed to meet the needs of specialized warehousing and distribution industries and compliment the new trend of Just-in-time manufacturing (producing the necessary items in necessary quantities at the necessary time).
 
 “Demand has progressively moved up, and last year we had record absorption. However, new product deliveries have been at 50% to 60% of what is typical for a recovery year. We are seeing less space coming onto the market,” observes Eugene F. Reilly, executive vice president and president of North America for AMB Property Corp., a San Francisco-based industrial REIT.
 
Locally, in SoCal, much of the warehousing is leveled and rebuilt once it becomes obsolete.  In smaller markets where land values are lower and site remediation concerns are minimal, old industrial space is converted to mixed use + loft space. New industrial development moves an exit down the freeway. The overall industrial vacancy rate in the third quarter of 2006 rests at 9.7% and is predicted to stay at this level until the end of the year.
 
National industrial vacancy rates have not been this low since 2001. Port markets (both traditional and inland) are experiencing the greatest demand for industrial space. The nation’s busy ports in Southern California are also fueling demand in major inland ports from Riverside to Albuquerque, N.M.
 
“While construction has picked up, it’s still very disciplined; demand still outpaces supply. And vacancies are still declining, but not by as much; at this point it takes a really strong demand to drive them down,” affirms Leonard Sahling, first vice president of the ProLogis Research Group.
 
The demand for specialized distribution space that cannot easily be met by existing stock has increased, and have caused an upswing in new build-to-suit industrial real estate. In addition, there has been an increase in the development of new speculative properties in areas of high demand SoCal and South Florida.
 
As of the third quarter of 2006, the high rent markets include San Diego ($9.71/psf), Orange County, Calif., ($8.86/psf) and Los Angeles, ($8.15/psf). Rent growth in 2006 is forecast to be approximately 1.5%, down from the 2.9% seen in 2005. Rent growth next year is predicted increase because of supply and and demand.
 
Southern California will continue to be the high rent district for industrial space. By the end of 2007, gross rent in San Diego is expected to be $10.50/psf.

Through the third quarter, $23.6 billion worth of industrial real estate had traded hands. Pricing has increased, while cap rates have, essentially, remained flat. Overall cap rates for industrial properties are resting at 7.2%, down from the 8.5% in 2004. Pricing has increased in 2006, from close to $65/psf to $76/psf.
 
Large institutions (life insurance companies, pension funds, etc.) have accounted for more than one-third of the industrial property sales volume through the first three quarters of 2006.  In the Midwest, institutions have accounted for more than 60% of industrial transactions.
 
Real Estate Investment Trusts (REITs) have in been particularly active buyers of industrial real estate in the Mid-Atlantic region, where they account for almost 50% of all industrial investment transactions year-to-date.
 
“The industrial REIT group is populated by some extraordinarily excellent companies, but they are excellent for different reasons,” observes Sullivan. “ProLogis and Catellus, for example, are great developers: An improving economy, leading to more industrial demand, leads to new building demand, which plays to their strength. Duke would be in that group as well. Liberty is another name I would throw in. Centerpoint is maybe qualitatively the best real estate company in terms of development, redevelopment, leasing and property management…Finally, AMB is a company that has a portfolio concentrated in the key industrial markets: Seattle, Southern California, Atlanta, Dallas, Chicago, Northern New Jersey and Florida. They own property in the right places.”
 
The Australians have had an appetite for industrial property recently and accounted for the bulk of 2006 foreign investment.
 
The highest prices being paid for industrial buildings (outside of Manhattan) are in Northern Virginia ($193/psf), San Jose, Calif., ($178/psf), and Las Vegas ($159/psf). While industrial transactions in the San Jose market are in flex, the Las Vegas market, which is a major trade and distribution hub, is more warehouse/distribution oriented.
 
For information on Southern California investment properties there is a great website at www.SoCalInvestmentRealEstate.com. Jodi Summers negotiates investment properties for Sotheby’s International Realty. For your real estate needs, e-mail Jodi Summers at jodis@verizon.net, or call 310.260.8269. Visit her websites at www.SoCalInvestmentRealEstate.com or www.santamonicalandmarks.com.

**

 Source: Real Capital Analytics,
08/2006
TOP INDUSTRIAL BUYER
COMPOSITION - % of
Sales Volume Y-T-D 2006
West
Private Investors……..42%
Institutional……..………22%
End User……………..…15%
THE NATIONAL ASSOCIATION OF REALTORS®, “The Voice for Real Estate,” is
America’s largest trade association, representing more than 1.3 million members
involved in all aspects of the residential and commercial real estate industries.
 
LOWEST INDUSTRIAL VACANCY
Q3/2006 FORECAST
1) West Palm Beach, FL 2.6%
2) Los Angeles, CA 4.6%
3) Fort Lauderdale, FL 4.7%
4) Miami, FL 5.0%
5) Orange County, CA 5.2%
6) Tampa, FL 5.5%
7) Long Island, NY 6.3%
Albuquerque, NM 6.3%
9) Ventura County, CA 6.4%
10) Riverside, CA 6.8%
11) Seattle, WA 6.9%
12) San Francisco, CA 7.2%
13) Tucson, AZ 7.4%
14) Portland, OR 7.6%
15) Orlando, FL 7.6%
USA National Avg. 9.7%
 

 

 

2007 COMMERCIAL PROPERTY FORECAST

January 18, 2007 on 9:13 am | In FASCINATING INDUSTRIAL REAL ESTATE INFORMATION, FASCINATING INFORMATION, Investment Opportunities, LIGHTS…CAMERA…TRANSACTION, OFFICE FODDER, PROPERTY WISH LIST, Uncategorized | 13 Comments

2007 COMMERCIAL PROPERTY FORECAST
 
The experts are predicting good prospects in commercial real estate in 2007…and even better news locally. Stan Ross, chairman of the board of the University of Southern California’s Lusk Center for Real Estate cites New York and Los Angeles among the “leading metropolitan markets” where properties will continue to command top dollar.
 
The Lusk Center also suggests that in addition to investing in traditional office, retail, industrial and hotel assets, speculators will examine alternative investments including urban infill, adaptive reuse and multifamily-retail developments near inner city transit centers.

Economists note that throughout 2006, sales and leasing were on a growth curve in the office, industrial, and multifamily sectors. They foresee these property types continuing to grow through 2007 and into 2008. The retail property market will be softer.

The expanding U.S. economy and an influx of institutional investment capital are keeping the volume of sales transactions high in the commercial sectors.
 
“Institutional investors have returned in a big way,” say NAR economic analysts.

Ross calls 2007 the “Year of Recycling” for real estate capital. The Lusk institute chairman explains that capital is not leaving property markets, but it is “being recycled into small equity funds, limited partnerships and alternative investments.” 
 
It’s believed that much of what is now evolving with capital investments is an outgrowth of last year’s privatization push - when some of the larger public Real Estate Investment Trusts went private.
 
Investors still have access to the inexpensive debt of recent years, which leaves room for potentially higher returns from real estate investments than other types of investments offer. With these factors at work, the USC Lusk Center chairman says, real estate “will continue its dominance as an asset class in 2007.” 
 
For all commercial sectors, lending volume is up and delinquencies are down. Construction costs are keeping speculative development to a minimum. Import and export activity continues at high levels, sustaining demand in warehouse and distribution facilities. Strong corporate profits are stimulating businesses to expand office and production space.
 
“The U.S. economy is proving very resilient, and that favors commercial real estate,” confirms Kenneth Riggs, CEO of Real Estate Research Corp.
 
The National Association of Realtors has spoken to those in the know and makes the following 2007 commercial property predictions:
 
Offices:
A minor rise in new office buildings in 2006 kept office vacancy rate relatively flat, but with healthy job growth, continued robust absorption levels, and moderate speculative development, the vacancy rate is expected to drop by the end of 2007.

Industrial:
A shortage of properties suitable for traditional and inland ports is driving the need for build-to-suit warehouse and distribution facilities. The chic conversion of older industrial properties to mixed-use purposes is also keeping inventories down and rents up. Vacancy rates are forecast to maintain the steady down trend they’ve seen since early 2004. Rents are expected to increase slightly.

Retail:
Retail is the dark spot in the commercial marketplace. Hit by still-soft consumer confidence and a mega merger between the Federated Department Stores and the May Department Stores that prompted store closings, retail was the only commercial sector in which vacancies rose and rent growth decreased in 2006. Regional shopping centers and neighborhood centers alike are suffering from store closures and softening consumer confidence. Retail vacancy rates are predicted to rise slightly in 2007. Average retail rent is forecast to increase marginally.

Multifamily:
The apartment market is strengthening as potential homebuyers remain in rental housing and echo boomers enter the rental market. Vacancy rates will continue to be marginal at best.

Our country will continue to be appealing to foreign investors.  US property prices look competitive from a global perspective. “The weak dollar also has given global investors more buying power in America,” observes Ross.
 
The commercial market will be lucrative, but not as lucrative as in years past. “Investors will have to look for ways to enhance value,” concludes Riggs.
 
Jodi Summers negotiates investment properties for Sotheby’s International Realty. For your real estate needs, e-mail Jodi Summers at jodis@verizon.net, or call 310.260.8269. Visit her websites at www.SoCalInvestmentRealEstate.com or www.santamonicalandmarks.com.
 

2007 COMMERCIAL PROPERTY OVERVIEW CHART

January 14, 2007 on 8:34 pm | In Uncategorized | No Comments

2007 COMMERCIAL PROPERTY OVERVIEW 

	Vacancy rate	Rental rate change	Net absorption
Industrial
2005	9.9%	2.9%	295.8 million (sq. ft)
2006*	9.7%	1.5%	201.2 million (sq. ft)
2007**	9.0%	3.6%	233.1 million (sq. ft)
Multifamily
2005	6.2%	2.9%	350,975 (units)
2006*	5.2%	4.8%	262,762 (units)
2007**	5.3%	5.0%	203,050 (units)
Office
2005	13.6%	5.2%	90.3 million
2006*	13.0%	5.5%	74.5 million
2007**	12.2%	8.3%	70.0 million
Retail
2005	7.2%	2.9%	30.5 million
2006*	8.2%	–1.4%	3.9 million
2007**	8.2%	2.6%	16.0 million
Source: NAR Research

  

  

WHERE TO BUY REAL ESTATE IN 2007

January 9, 2007 on 7:24 pm | In FASCINATING INDUSTRIAL REAL ESTATE INFORMATION, FASCINATING INFORMATION, FUNNY...MONEY, Investment Opportunities, New Developments, PROPERTY WISH LIST, Uncategorized | 6 Comments

WHERE TO BUY REAL ESTATE IN 2007

Time for some national housing statistics… at the end of the third quarter 2006, the median home price in the U.S. was $231,000, according to the National Association of Realtors. Money magazine reported that Newport Beach had the highest median home price, at $1.36 million, followed by Greenwich, Conn., at $1.13 million and Santa Barbara, Calif., at $979,500.

And here is the $10,000 question…as the real estate market softens, where will home prices remain highest? Last year, the median price of homes in San Bernardino County rose 8.6 percent, while in Ventura County they fell 8.2 percent. Where is one to buy? Experts say look for a strong local economy.

“Investors will pull back from core office markets,” notes Forbes columnist Peter Slatin. “Instead, the two strongest targets for investment will be retail/affordable housing in inner cities and office buildings in outer suburbs, both of which have been passed over by investors for years–and both of which now represent strong value plays,”

Housing data from the U.S. census shows that the metro areas with good healthy technology, manufacturing, entertainment, or financial-services companies, and renowned universities, enjoy healthy property values.
In areas such as San Jose, San Francisco, and Anaheim have buyers paying nine times their median incomes on new homes. The reason, says Mark Zandi, chief economist for Moody’s Economy.com, is that “these local economies are among the nation’s most productive. Housing values are driven by the activity on the land.”

Between 2Q 2004 and 2Q 2005, Elk Grove, CA, located south of Sacramento,  had the nation’s fastest growth, an 11.6 percent population increase to 112,338.  rate among cities with a population 100,000 or more, according to the latest U.S. Census Bureau population estimates.

But where to buy? The National Assn. of Realtors reported the largest 2006 gain in single-family home-prices in were in the Salem, Ore., area. Here, the 3Q 2006, median price of $228,000 was 24.7 percent higher than the third quarter of 2005. Another winning location was Elmira, N.Y., where the median home price of $93,000 was 21.4 percent higher than 3Q 2005.

The median sales price in Richland County, South Carolina (the area around Columbia), jumped from $136,979 in October 2005 to $162,487 a year later - a rise of 18.6 percent - and a jump from $83 to $92 in the price per square foot.

The area around Austin, TX, a hot investment market, saw 9 percent growth. In Georgia’s Columbia County, home prices appreciated 5.8 percent while in nearby Richmond County, they went up 3.1 percent in that period.

Zandi observes that home buyers looking for a bargain in the strongest areas will be largely disappointed. He sites that, “Studies have shown that the time it takes for real income to catch up with median housing prices is around 12.5 years in top market areas — at which point the housing cycle may again be in an upswing.”

If you’re looking to invest, the areas to watch are in the middle. In places experiencing moderate growth and where the local economy is steady if unexciting, there are people who have been taking advantage of low interest rates to finance lifestyles beyond their real spending power, buying second homes, cars, boats, etc., using their equity as easy credit. As rates increase, they will find it increasingly difficult to refinance their spending habits, and many will be forced to sell their assets…that’s where the true values can be had.

Fortune magazine and Moody’s Economy.com note that “The housing market looks particularly healthy in the Southeast.”

Their top market, McAllen, Texas, is predicted to rise 8.5 percent in 2007, and another 9.8 percent in 2008. Here is their choice for the top 10 housing markets projected to rise the most in 2007 and 2008:

o McAllen-Mission, Texas
o El Paso, Texas
o Albuquerque, N.M.
o Salt Lake City
o Syracuse, N.Y.
o San Antonio
o Rochester, N.Y.
o Baton Rouge, La.
o Fort Worth-Arlington, Texas
o Birmingham, Ala.

Jodi Summers is Director of the Investment Division at Boardwalk Realty. For your real estate needs, e-mail Jodi Summers at jodis@verizon.net, or call (310) 309-4219. Visit her websites at www.SoCalInvestmentRealEstate.com or www.santamonicalandmarks.com.

Kearny Closes on 700,000-SF Nissan Site

January 6, 2007 on 5:41 pm | In FASCINATING INDUSTRIAL REAL ESTATE INFORMATION, FUNNY...MONEY, Investment Opportunities, LENDERS + VENDORS, LIGHTS…CAMERA…TRANSACTION, New Developments, Uncategorized | 4 Comments

Kearny Closes on 700,000-SF Nissan Site

LOS ANGELES-Kearny Real Estate Co. of Los Angeles and Morgan Stanley Real Estate have closed on the 42-acre former headquarters campus of Nissan North America, which the buyers plan to redevelop and reposition. Terms of the purchase were undisclosed, but the deal is believed to be north of $75 million.

The campus, at 190th and Figueroa streets with property in the cities of Los Angeles and Carson, includes both office and light industrial space in buildings that range from 14,000 sf to 208,000 sf. The site served as the North American home to Nissan from 1972 until the Japanese automaker’s move to Tennessee this year.

The 13 buildings on the campus include the nine-story, 120,000-sf former Nissan North America headquarters office tower on Figueroa Street adjacent to the Harbor Freeway. Jeff Dritley, Kearny managing partner says that the new owners plan “significant capital improvements” before returning the individual buildings to market for sale and/or lease.

Dritley says that initial plans call for filling the campus with small and midsized businesses “which have been the steady drivers of job growth in L.A. County over the past decade.” However, he adds, “If fortunate enough, we certainly would work with a large user that wants to take a significant portion of the campus.”

By Bob Howard of GlobeSt.com

2006 Real Estate Wrap Up

January 1, 2007 on 10:09 pm | In FASCINATING INDUSTRIAL REAL ESTATE INFORMATION, FASCINATING INFORMATION, FUNNY...MONEY, Investment Opportunities, LIGHTS…CAMERA…TRANSACTION, New Developments, PROPERTY WISH LIST, Uncategorized | 4 Comments

2006 Real Estate Wrap Up
 
In 2006, the Southland — San Diego, Los Angeles, Orange, Riverside, San Bernardino and Ventura counties — relaxed after the dramatic real estate run-up between 2000 and 2005, in which home values in many communities doubled and then some. Last year, the best places to invest were San Bernardino and Riverside, which still saw nice appreciation.
 
The median price of all types of homes sold in the six-county region was in the neighborhood of $487,000, up 1.7% from 2005, reports research firm DataQuick Information Systems. It’s the slowest rate of growth since February 1997.
 
“Obviously, there’s a correction going on, but it’s not going to collapse,” said Delores Conway, director of the Casden Real Estate Economics Forecast at USC. “Even with prices flattening, it doesn’t mean that we’re in a serious housing downturn.”
 
In Los Angeles County, reports DataQuick, median home prices rose 2.6% to $510,000 as sales fell 18.9%. Kudos go to San Bernardino, the county saw a median price rise  of 8.6% to a record $380,000, while sales declined 26.7%. Nice growth was also had in Riverside County, where the median price rose 5.2% to a record high of $426,000, but sales slumped 35.7% from a year ago. Ownership has been painful in San Diego County, real estate is losing value. By year end, the median price fell 6.9% to $482,000, as sales fell 24%. Ventura County was the biggest loser, with housing prices falling 8.2% to $562,000 with sales sliding 30.8%. Orange County property saw no appreciation - the median residential property price of $616,000 is the same as 2005. Sales dipped 29.3%.
 
And as SoCal goes, so goes the country, with many cities and states seeing a flattening and / or drop in real estate prices.
 
Remove the now lackluster housing sector from the gross domestic product equation, and the GDP actually grew 3.3 percent in the second and third quarters of 2006 — close to the 3.4 percent rate achieved in the prior four quarters, observes the National Association of Manufacturers’ chief economist, David Heuther.
 
Foreclosures were at historic lows,  and as you’d expect, they are now on the rise. RealtyTrac Inc., a company that monitors foreclosure activity reports that the number of Notices of Default more than doubled to 18,516 – up from 7,080 in 3Q 2005.
 
“Historically, about 60% of those properties won’t get as far as the foreclosure auction,” enlightens Rick Sharga, the vice president of marketing for RealtyTrac Inc.
 
The Casden Real Estate Economics Forecast and other experts note that the deceleration is a prerequisite for the housing market to reestablish its footing after an extraordinary period of growth.
 
The National Assn. of Realtors reported the largest single-family home-price gains in 2006 were in the Salem, Ore., area, where the third-quarter median price of $228,000 was 24.7% higher than the third quarter of 2005. Next was Elmira, N.Y., where a median home price of $93,000 saw a price boost of 21.4% from the third quarter of 2005.
 
Going forward, in 2007 it is believed that real estate prices will go, “Not up, not down — flat is the operative word for prices,” notes Inman News. “2006 was the year for adjustment, and adjust they did: they stopped rising as fast as the price of oil. Without easy money, without ridiculous hype and without speculators, 2007 will see further erosion of home prices.”
 
Housing will lose its sex appeal. TV shows on home improvements, weird Realtors and house flipping will be canceled.
 
The economy will grow at 2.9 percent in 2007 and 2.8 percent in 2008, the National Association of Manufacturers forecasts, up from 2.1 percent in 2006.
 
Heuther notes that residential housing prices will “continue to be a drag on the economy” in the first half of 2007, but solid growth in investment and trade will help the economy grow at a faster rate next year than in 2006. Nationally, housing prices fell at a 9.2 percent annual rate in the fourth quarter 2006. Looking forward, residential investment is expected to decline by 2.8 percent in the first quarter and 2.5 percent in the second quarter before beginning to recover in the fourth quarter of 2007.
 
Jodi Summers is Director of the Investment Division at Boardwalk Realty. For your real estate needs, e-mail Jodi Summers at jodis@boardwalkrealty.com, or call (310) 309-4219. Visit her websites at www.SoCalInvestmentRealEstate.com or www.santamonicalandmarks.com.