Southern California Industrial Real Estate Recovering, Although Small Players Left Behind

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The Southern California industrial real estate market has been recovering for the last 18 months and a number of major developments have been built in Los Angeles, Orange County and the Inland Empire, says Kurt Strasmann, senior managing director for CBRE's Orange County region and Southern California industrial functional leader. Among the large industrial facilities built during this period is the $250 million North American Operations Center for the Skechers shoe company, located in the Moreno Valley, approximately 60 miles east of Los Angeles in the Inland Empire.

"There is close to 15 million square feet of spec development underway today, of which 9 million square feet are in the Inland Empire," says Strasmann. "The vacancy rate in the Inland Empire is back to about 6%," he says, although this rate doesn't take into account sublease space.

"We are tracking close to 20 active transactions with companies that are looking for space in excess of 500,000 square feet," and because there isn't much existing space, there is a lot of spec development going on, says Strasmann.

But the Southern California industrial real estate market is not completely healed. "Corporate America is doing well, while the smaller, regionalized guys are struggling, so (development and leasing) is mostly (confined to) large facilities," says Strasmann. The large, industrial players are consolidating to save money, so there is no net growth, he says. "Skechers consolidated a year ago and all the large requirements (for large spaces) are going to the east (the Inland Empire), where more land is available," he says.

The overall industrial vacancy rate in the Southern California region is about 4.5%, says Strasmann. "The (large) high quality space is getting leased up, while the smaller spaces are struggling," he says.

According to the CBRE Industrial MarketView report for Southern California for the third quarter, "Trade volumes at the Ports of Los Angeles and Long Beach continued to be steady in the third quarter." Both ports had an increase in loaded inbound containers year-over-year, bringing the total for 2012 through August to 4.7 million containers. During the first eight months of the year, the Port of Los Angeles had a total of 2.8 million loaded inbound containers and the Port of Long Beach had a total of 1.9 million loaded inbound containers.

Combined gross activity for Southern California totaled approximately 20 million square feet in the third quarter. Greater Los Angeles led the way during the third quarter with approximately 10.6 million square feet of activity, while the Inland Empire also had a significant amount of activity with 7.3 million square feet.

Orange County was the only market in Southern California to have negative net absorption in the third quarter with negative 118,750 square feet. The vacancy rate in Orange County, however, remained at 3.8%, according to CBRE. In contrast, in Greater Los Angeles, the vacancy rate dropped to 2.8% in the third quarter, 20 basis points lower than in the second quarter, and the vacancy rate fell to 6.3% in the Inland Empire during the third quarter.