Southern California Industrial Real Estate Blog

BIG WAREHOUSES ARE FARING BETTER THAN SMALLER UNITS

BIG WAREHOUSES ARE FARING BETTER THAN SMALLER UNITS

By Jodi Summers

A new study from Torto Wheaton Research has discovered that larger
US warehouses are currently outperforming smaller assets. Research
shows that warehouse buildings of less than 250,000 square feet
make up a greater percentage of the national warehouse stock, but
warehouses of 400,000 square feet and up are faring better in terms
of both demand and supply fundamentals. 

“The difference in performance of smaller versus larger warehouse
buildings could be due to the mere fact that larger buildings take
longer to build and are harder to abandon once in the start phase,
or that many are owner-occupied, single-tenant,” observes TWR
senior economist Laura Stone Mortimer. 

Data from TWR/Dodge shows new industrial space construction will
hit historically low levels this year and next…roughly equivalent
to the slowdown of the early ’90s. The previous minimum for
industrial development occurred in ‘93, when stock grew by just
0.7%. 

The study shows the number of deferred warehouse projects has
increased nationwide over the past two years. In ‘07, there were
a total of 358 deferred warehouse projects. The number jumped to
nearly 700 in ‘08, and this year there were more than 300
projects deferred in Q1 alone. The markets with the greatest
number of deferrals are primarily those that disproportionately
affected by the housing crisis, such as Phoenix, Las Vegas,
Riverside, CA and Orlando and Jacksonville, FL. Detroit, which
is experiencing unprecedented hardship with the failure of GM and
Chrysler, also has a high number of projects on hold. 

Bigger is better in the current environment.There are fewer
deferrals for larger projects. Of the approximately 66 million
square feet under construction and slated to come online through
next year, nearly half involves projects of 400,000 square feet
or larger. 

“Demand for the larger buildings just turned negative in the
first quarter of 2009, with three million square feet of negative
net absorption, compared to 49 million square feet (of negative
absorption) for smaller warehouses,” observes Stone Mortimer. 
“Since the onset of the financial crisis, demand has fallen off
precipitously for smaller warehouse buildings, which have
experienced negative net absorption since the second quarter
of 2008.”

The world is changing. Demand for larger US warehouse and
distribution buildings has grown substantially since China joined
the World Trade Organization in 2001, opening the door to greater
US-China trade. 

http://covenantrealty.net/IMAGES/TORTO_WEATON.gif

REAL ESTATE PRICES ARE STILL UP THIS MILLENIIUM IN LOS ANGELES

REAL ESTATE PRICES ARE STILL UP THIS MILLENIIUM IN LOS ANGELES

by Jodi Summers

A recent report on Forbes.com citing the 10 Best and 10 Worst U.S. Housing Markets noted that in Los Angeles, if you bought in 2000, paid your mortgage on time and are still in your home, you’ve seen a 71.5% price appreciation.

Up north, San Francisco’s prices are up 30.12% from 2000. It still has the potential for a further fall, given the 31% drop for 2008.

Forbes analyzed monthly declines and year-over-year declines in home prices to determine where prices were falling fastest and where those drops were picking up momentum. They noted, “It’s not a good thing for San Diego that prices from November 2008 to December 2008 fell 2.13%, but as prices declined by 2.29% from October to November, and 2.44% from September to October, the speed with which prices are falling is slowing.”

The information is based on an S&P/Case-Shiller home price index, which measured metro home prices in 20 cities through December 2008.

Info courtesy of:

http://www.forbes.com/2009/02/24/housing-cities-ten-lifestyle-real-Estate_home_prices.html?partner=alerts

THE CITY OF L.A. WANTS TO GREEN INDUSTRY + PORTS

By Jodi Summers

Mayor Antonio Villaraigosa announced in Los Angeles’ State of the City Address that the city intends to grow the clean and green city concept …is it merely election time promises or can L.A. be the leader in Clean Technology?

“…We are aggressively growing the industries of the future here in LA.. We need to build a future in which clean technology is - as - synonymous with Los Angeles as motion pictures or aerospace. Where LA is acknowledged as a growing capital of the green economy.

“With our Solar LA plan, we’re working to cut our carbon footprint and to transform LA into a clean energy powerhouse. With the nation’s most far-reaching green building ordinance, we believe we can create America’s most vibrant jobsite in sustainable construction. And at the Port of Los Angeles, I’m proud to say tonight that we’ve sent 2,000 dirty diesel trucks to the junkyard and replaced them with vehicles that run on natural gas and electricity.

“I believe L.A.’s economic future starts right here, in places like Balqon, where the next generation of electric trucks are being designed, tested, and manufactured; where we are literally revving up the engines of our Clean Truck Program; where the wheels of a clean, green port are turning; and a new high-tech venture is producing clean fuel vehicles IN L.A., for the betterment of LA.

“This facility will serve as the model for our Harbor Clean Tech Center; for investments in the latest vessels for green development; for the San Pedro Bay Port Technology Development Center - home of green companies serving our port.

“A few miles up the 110, we are building a literal “Clean-Tech Corridor.” A business corridor bringing together researchers, designers and manufacturers from around the world dedicated to sustainable solutions and to creating green-collar jobs.

“Located just outside of downtown, this corridor will house our Clean Tech Manufacturing Center a catalyst for smart growth that could create as many as 1,000 high-paying jobs.

“It will host our Clean Innovations Research Center where the world’s leading experts will come together to define future renewable energy sources, water conservation strategies, and green building advances.”

http://mayor.lacity.org/pressroom/stateofthecity/index.htm

INDUSTRIAL PROPERTY FORECAST - 3Q 2009

INDUSTRIAL PROPERTY FORECAST

By Jodi Summers

Industrial properties in near the Southern California airports and ports were long considered to be secure investments, for seemingly obvious reasons…

1. Two of the country’s three largest ports.

2. An organized, but congested distribution hub.

3. A world of growing economies exchanging products, and the need to store these products as they arrived / departed our shores.

With the world economy at a standstill, this has certainly changed. Currently, the

Industrial market is in serious pain. Los Angeles area industrial vacancy rates are down 8.2%, and the increase in space has led to a drop in rental rates by 10% or more.

It’s a buyer’s market. Investors are saying that SoCal industrial volume sales are at their lowest in a decade. The Society for Industrial and Office Realtors (SIOR) reports, “The Industrial marketplace is suffering from decreased leasing activity, a steeper decline in rental rates, and higher levels of tenant concessions. It is also expecting higher vacancy rates.”

Industrial real estate is not alone. Although everyone would love to paint a prettier picture, currently, the commercial market is in turmoil. Research from the Realtor Commercial Alliance concludes that thus far this year, virtually all commercial sectors throughout the country are down. (Someone prove us wrong please.) The economic shift has caused the demand for commercial properties to drop precipitously, bringing down prices and rents. Add to this scenario maturing commercial debt, with credit available to bolster the need for funds…and voila, you have a jump in delinquencies and distressed properties. Sellers outnumber buyers, vacancy rates are rising in all sectors.

“You just have to hang on as best you can right now,” notes sophisticated investor, EW Moon.

SIOR notes that the Western U.S. industrial sector is suffering more than other regions of the country. “Its overall market is suffering from the largest decline in asking rents, the lowest level of leasing activity, the highest level of available sublease space, thedeepest level of landlord concessions, and higher vacancy rates. The short term outlook for the West is the lowest of all regions, with sales prices that are lower than replacement costs.

Looking forward to brighter days, there are signs that economy is no longer cannonballing into a depression. The gross domestic product (GDP) declined only 1.0% in the second quarter of 2009. This can be considered hopeful news after a 6.4% decline in 1Q 2009, and a 5.4% drop in 4Q 2008.

Are you interested in knowing the condition of your local real estate market? Email jodi@jodisummers.com to receive a free market report for your LA county neighborhood.

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http://www.realtor.org/wps/wcm/connect/83575f004f476966b69ff74e813808c1/FullCREO09August.pdf?MOD=AJPERES&CACHEID=83575f004f476966b69ff74e813808c1