Mid-Counties Benefits From Rising Demand for Industrial Space
Companies being squeezed out of Commerce and other industrial centers close to Los Angeles have been heading down the freeway to the Mid-Counties market in recent years, but the same boom that has consumed nearly every square foot of industrial space in Commerce appears destined to do the same to Mid-Counties industrial land.
The Mid-Counties market, also known as the Mid-Cities, is a group of communities straddling Los Angeles and Orange counties. It comprises from about seven to 14 communities, from Santa Fe Springs to Los Alamitos, depending upon which real estate brokerage’s definition you use.
Regardless of how it is defined, however, the Mid-Counties market is both enjoying and suffering from the same intense demand for industrial space that is squeezing the closer-in markets of Commerce, Vernon and Central Los Angeles.
In some respects, however, the Mid-Counties region is more a market for the new millennium than are the older industrial areas of Los Angeles. Those older places grew out of a need for companies to locate near the traditional business and population centers of L.A., commercial real estate brokers say, while the Mid-Counties market has emerged as the location of choice for companies that want to service both Los Angeles and Orange counties.
“You can serve most of the 16 million people in Southern California within two hours from the Mid-Counties,” said Steve Batcheller, a CB Richard Ellis broker who has worked the Mid-Counties market for 18 years.
The Mid-Counties emerged during a 20-year trend in which companies migrated there from Commerce, Vernon and other older industrial areas, Batcheller said. The market has developed its own characteristics, however, which differ from those of the closer-in industrial centers.
The Mid-Counties region is more of a distribution and warehouse center, in contrast to the manufacturing activity that dominates in older areas of L.A. and the northern parts of Orange County, Batcheller said.
Mid-Counties buildings are newer, too. Most of them were built from the 1970s through the ‘90s, and most of the Commerce and Vernon industrial space was built from the ‘40s through the ‘60s.
That makes the Mid-Counties space more suited to modern distribution because it has the higher ceilings, larger truck-turning radiuses, modern fire prevention systems and other features that have become standard for today’s warehouse operators, Batcheller said.
Approximately 9 million square feet of speculative industrial space has been built in the Mid-Counties since 1995 and every square foot has been leased except for the space currently under construction, Batcheller said. Quick leasing of speculative buildings is considered a sign of a strong market because so-called spec buildings are constructed without tenants already lined up.
Batcheller said the overall vacancy rate for the market is about 4%, and closer to 2% for top-quality space. But Mid-Counties still holds some advantages over surrounding industrial markets because, in real estate, everything is relative.
“Even though there’s not much land in the Mid-Counties, there’s virtually zero land in Commerce and Vernon,” Batcheller said.
One of the few big parcels available in the Mid-Counties is the Golden Springs Business Center in Santa Fe Springs, a 265-acre development on the site of the former Golden Springs refinery.
Golden Springs has built and leased more than 1 million square feet of speculative industrial space during the last year and has about 286,000 of spec space under construction, according to Steve Calhoun, a Seeley Co. broker who has the Golden Springs listing.
Golden Springs, which plans a total of 5 million square feet, already has a prospective tenant interested in leasing all 286,000 square feet of the new space, Calhoun said.
The greatest demand in the Mid-Counties is for warehouse and distribution space in buildings of 100,000 square feet or larger, he said, the same sort of large-scale distribution space that has created a huge community of warehouses in Ontario and nearby cities in the Inland Empire.
Calhoun and other brokers said companies looking for space in the Mid-Counties are willing to pay more to locate there, where rents average 45 cents per square foot per month, as opposed to taking cheaper space in the Inland Empire.
“I have one client who is looking for 200,000 square feet of space, and the difference between here [the Mid-Counties] and the Inland Empire is 16 cents per square foot,” said Jim McFadden, a Grubb & Ellis broker. On a five-year lease, 16 cents a foot on 200,000 square feet is a $1.9-million difference.
Whether companies choose the pricier Mid-Counties or the cheaper Inland Empire usually depends on how much they might save in transportation costs by taking space in the Mid-Counties, McFadden said.
“If you’re not a port user and don’t have a fleet of trucks going back and forth from Ontario, the space out there looks pretty inviting. But if you’re running a lot of trucks back into the populated areas or hauling a lot of containers from the port, it doesn’t look as inviting,” McFadden said.
The shrinking supply of available land in the Mid-Counties market means developers, too, are turning elsewhere. Catellus Industrial Development has built nearly 800,000 square feet of space in the Mid-Counties in recent years but has used up all its space there, according to Charles McPhee, a Catellus senior vice president.
“Most of our development in the coming years is going to be in the Inland Empire. We have land we’ve owned in Rancho Cucamonga and Ontario for quite a while,” McPhee said.
Demand for smaller industrial buildings is just as great as the demand for big warehouses, according to Chuck Lyons, a principal with Paramount-based Fu-Lyons Associates, which has developed approximately 1.5 million square feet of industrial space in buildings of 5,000 to 20,000 square feet in the Mid-Counties market.
Lyons both leases and sells his buildings. He said nearly all of his buyers at one time were companies that wanted the buildings for their own use, but investors are now competing against the owner-users for those properties. The result is a seller’s market with small industrial buildings fetching premium prices, Lyons said.
“It used to be easier for me to just sell a building to an owner-user, but now it’s easier for me to fill the building with a tenant and then sell it to an investor,” Lyons said.
Lyons said he’s also getting higher rents.
“Back in 1995 when the market first started to recover, the demand was there, but we couldn’t get the rents we do now,” he said. He said he recently signed a tenant to a lease at 60 cents per square foot, the highest rate he has negotiated since the market turned.
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Mid-Counties Market
The market is tightening in the Mid-Counties area straddling Los Angeles and Orange counties, shown in white. Vacancy rates as of Sept. 30:Artesia 3.0%
Bellflower: 2.1
Buena Park: 4.6
Cerritos: 5.2
Cypress: 8.0
Downey: 2.2
La Mirada: 2.5
La Palma: 1.2
Lakewood: 0
Los Alamitos: 2.2
Norwalk: 2.9
Paramount: 1.8
Santa Fe: Springs 4.2
Whittier: 6.8
Average: 4.1
Source: CB Richard Ellis
