Lower Expectations, Tempered with Ongoing Demand Mark "Market Review & Forecast" Event
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Uncertainty and somewhat lower expectations as we emerge from one of the most robust commercial real estate markets ever, tempered with underlying strong demand in several submarkets. |
This was a central theme of a blue ribbon panel of commercial real estate experts addressing the recent 15th Annual “Market Review & Forecast” presented by the AIR Commercial Real Estate Association Jan. 23 at the Jonathan Town Club in Los Angeles. |
Another strong turnout of some 300 people, including media, attended. |
Reflecting AIR’s signature submarket-by-submarket format, varying supply-demand conditions in regions continue to defy generalizations. |
Commenting on the North Los Angeles County submarket, Brad Koehler of Cushman & Wakefield said the area shows a two percent vacancy rate for industrial property, but saw lease rates and sales prices edge down during the final quarter of 2007, while the office sector saw negative absorption for the year. |
Looking at 2008, Koehler sees lease rates for industrial and office properties declining, with land and sales prices falling. |
After a robust first half of 2007 with the average sale price of industrial property jumping to $130.56 per square foot, the Inland Empire, said Michael Chavez of Lee & Associates, Ontario, saw “one of the slowest summers in a long time, and we’re all facing uncertainty about how to look forward.” For 2008, he expects a decrease in user activity, decreases in both lease and sales rates, less new development, longer vacancies and cap rate compression. |
Coming off what he said were an all-time high for lease and sales rates for industrial property with a three percent vacancy in Orange County, Rick Ellison of Cushman & Wakefield, Irvine, said vacancies will rise slightly in 2008, “though I think it will be a soft landing”. Ellison noted that there will be a significant transitioning from manufacturing uses to more of a distribution base. However, he expressed concern over what he called “the flattening” of the container traffic business. He added that because of the lack of construction in the infill markets, the big push in Orange County will be to find “value added” opportunities. |
A major movement of companies from east to west is benefiting the Eastern submarket, notably the San Gabriel Valley, according to Jason Jamison, principal of GM Properties, Whittier. Noting that William Sonoma recently took 1.1 million square feet of industrial space in a move from Ontario to City of Industry, Jamison said: “These companies are paying more for the space, but high fuel costs and the ability to ship goods more efficiently, influenced their decisions.” For 2008, he sees flattening of vacancy rates “which can’t go much lower at three percent”, flat sale prices, increasing lease and cap rates. |
Declaring that the industrial sector is shrinking on the Westside, Michael Preiss of The Klabin Company said rental and sales rates for office properties have surged, noting that lease rates increased 20 percent in 2007. |
“L.A. and the Westside office markets are still perceived as undervalued compared to other major metropolitan areas worldwide, including New York and London,” said Preiss. He reported that there is 4 million square feet of space coming on line, with a distinct trend of movement from the Upper to the Lower Westside. For 2008, Preiss sees the office market remaining stable with moderate leasing activity, a return to a healthier vacancy rate around 9.5 percent, stable rental rates which he said have peaked, increased foreign investment, and continued movement south from the Upper Westside. |
The downtown L.A. industrial market was strong in 2007 and will continue that way in 2008, according to Bryan Lee of North American Commercial Properties, Los Angeles. “Lease rates rose 5-10 percent and there has been high sales activity, with particularly younger buyers favoring newer concrete tilt-up facilities. “We really don’t have enough buildings to sell with strong demand particularly for strong loading facilities as more importers occupy the district.” Lee added that the conversion of buildings to industrial condos and retail facilities “is catching fire and are typically sold out prior to completion of construction.” Lee said 2008 will see a stable commercial and industrial property market downtown typified by strong owner-user demand notably from the Asian community, and short supply. |
| Focusing on the South Bay submarket, Becky Blair of Blair Commercial, Long Beach, said the industrial market continues strong, citing a 1.4 percent vacancy, largely due to “the positive link to the international trade sector.” She added that office space is also strong because it “represents an affordable alternative as well as a link to international trade. And there’s little new inventory”. In Long Beach, in particular, Blair said developers are looking to demolish office buildings on Ocean Blvd. for hotel and condo development, as well as high rise residential/office. “This space would be filled immediately,” Blair said. |
| Emerging as perhaps the strongest submarket of all, based on comments by Chris Sheehan of Colliers, Torrance, the Mid-Counties area benefits from its popularity for investment, lower vacancy rate, central locale bridging L.A. and Orange Counties and relatively modern product. Sheehan noted that vacancies for the mostly industrial market dropped from 4.6 to 3.79 percent in 2007. “There is very little available land, so we expect a lot of renewals in 2008,” said Sheehan. He said in 2008 he also expects slight increases in vacancies, rents, sales prices, and land prices. “Big investor players are still hot for good product at lower cap rates,” Sheehan said. |
Bart Reinhard Named 2008 AIR President
Declaring that the AIR Commercial Real Estate Association continues to be the “provider of choice”, particularly during challenging real estate environments, Bart Reinhard, SIOR, senior vice president in the Ontario office of CB Richard Ellis and a 25-year real estate industry veteran, has been elected the 40th president of AIR. |
| Reinhard, who brings extensive brokerage and management experience to the leadership of AIR, having served as senior managing director of CBRE’s Los Angeles North region before returning to brokerage, succeeds Stan Mullin, SIOR, senior vice president of Grubb & Ellis, as AIR president. |
Joining Reinhard as 2008 officers, all of whom were introduced at the recent “Market Review & Forecast”, are Douglas C. Earnhart, SIOR, senior vice president, Lee & Associates, Ontario (president-elect/long-range planning chair); Chuck Noble, founding principal, Lee & Associates-Orange (vice president/multiple chair); Joseph Vargas, executive managing director/area leader, Cushman & Wakefield, Southern California (vice president/education), and David M. Harding, senior vice president, CB Richard Ellis, Universal City (secretary/treasurer). |
| An AIR member for 15 years, Reinhard has served on the Association’s Board of Directors for the past seven years, serving as education vice chair, computer chair, marketing chair, MULTIPLE director/vice president, and long-range planning chair. |
“Nothing is more critical to the brokerage community in the cyclical real estate industry than timely and accurate property information. AIR continues to be the provider of choice in our industry,” said Reinhard during the annual dinner event. |
Reinhard went on to emphasize that during 2008 AIR will continue to intensify its membership outreach. This includes, he said, the addition of board members for greater demographic coverage, the roll out of office data for Los Angeles County, making all industrial properties in the area available via the CDX Internet-based property data system, and the provision of all AIR data via hand-held devices. |
Tim Hayes, executive director of AIR, added that three regional broker networking events along with a seminar covering AIR’s industry-standard forms are already scheduled for 2008. Hayes also announced that since 2004, AIR’s membership has increased from 1470 to 1769, and from 350 to 406 offices. |
Reinhard attended UCLA and is a member of the University of California, Irvine Boosters and UCLA Boosters Association. He and his wife, Bea, reside in La Canada. |
AIR
Member Deals
Central Region
•
DAUM's Kevin Tamura Helps Market $18.5 Million Downtown Office Package
Kevin Tamura of DAUM Commercial Real Estates Services, along with James A. Tagliere of Excel Real Estate Management Consultants Corporation, represented Sixth Street Capital Investors in their sale of a two-building downtown Los Angeles office portfolio totaling approximately 98,000 square feet for $18.5 million. The two properties include a 37,882 square foot office building at 1111 W. 6th St., and a 59,997 square foot office building at 1125 W. 6th St. The two properties are located adjacent to Good Samaritan Hospital. A third lot located at 1330 W. 5th St. with a two-story parking structure was included in the purchase price. Adam Tescher of CBRE represented the buyer, TC Bixel, LLC.
Orange County
• No Luck Involved
Ross Bourne of CB Richard Ellis’ Newport Beach office represented the tenant, Lucky Craft, Inc., in its lease of a 25,309 square foot distribution facility at 380 Clinton St., Costa Mesa, for a 10-year term. Lease consideration was in excess of $2.2 million. Bill Anderson of Meridian Pacific and Don Gregg of Curtis & Associates represented Kowlton Communities, the landlord.
• NAI Duo Join Hands
David Knowlton, senior vice president with NAI Capital’s Newport Beach office along with Jake Bates of NAI Utah, represented the Church of Jesus Christ of Latter-Day Saints in the investment sale of a 15,119 square foot office property located at 833 Dover Dr. in Newport Beach. The transaction was valued at $5.2 million. Knowlton also represented the buyers, Lincoln Yee and Grace Pack, in the purchase of the building that was fully leased to multiple tenants at the time of sale.
Southeast Region
•
Voit Direct $13.7 Million Mid-Counties Business Park Sale
Voit Commercial Brokerage has completed at $13.7 million investment sale of a 105,442 square foot business park in Norwalk. Robert Socci, Louis Tomaselli and Mitch Zehner of Voit’s Anaheim Metro office represented both the seller of the Carmenita Square Business Park, Carmenita Square Business Park, LLC, and the buyer, MVP Carmenita. The three buildings comprising the business park feature units ranging from 412 square feet to 7409 square feet. The project had a 90 percent occupancy at sale time.
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Odic Environmental Accents Due Diligence
Affiliate Profile
Lee Comer, director of operations for Odic Environmental, declares that particularly in today’s commercial real estate market, prospective owners of properties should make sure they take care of the environmental due diligence on property before sinking their money into it. |
“If they don’t they could assume any or all liability related to cleaning up contamination on that and surrounding properties. Many investors or business owners are trying to offload properties quickly in this market. A buyer may come across what appears to be a great deal. The price is lower then they would expect, and on the surface the property can look OK. But only by doing the environmental due diligence can they understand the true history of the property and what they are purchasing,” said Comer. |
| He added that there are times prospective purchasers may believe they are buying vacant land and find out that the land use to be an industrial site during World War II that contaminated the ground with solvents that have not been cleaned up yet. |
“With credit tightening and more people defaulting on loans, banks are having to foreclose on more properties. Bankers have to make sure they do their due diligence on properties so they are not liable for any environmental clean up before they sell the property. |
Located in the mid-Wilshire area, Odic Environmental provides comprehensive environmental solutions for projects in all stages, including the identification, monitoring, cleanup/remediation, and abatement of nearly all major contaminants. Odic can be reached at (213) 380-6072, or e-mail Comer at leecomer@odicenv.com. |
Quick
Bursts And Coming Events
AIR “Orientation” – Friday, March 14, Marriott Downtown L.A. Hotel,
333 S. Figueroa St., Los Angeles. Brandon Burns, orientation
chair; Joseph M. Vargas, education chair, and Charles F. Noble,
MULTIPLE chair, presenting. Registration 8 a.m.; program
8:30 a.m. to Noon.
AIR Forms Seminar - April 21, Marriott Torrance Hotel. Click here to register.
Broker Networking Event - May 28, Home Depot Center, Carson.
Broker Networking Event -October 22, Orange County. Pacific Club, Newport Beach.
In-House Training - The AIR offers
training for e-MULTIPLE, WinAIR Forms, and AIRMail.
If a group of brokers or staff from your office would
like to have the AIR bring training to you in-house,
contact Martin Vartanian at (213) 687-8777. A number
of firms have already taken advantage of this great
service and been very pleased with the results.
Member Deals and Profiles - As soon as you
close a substantial deal, make sure you give Art Ansoorian
a call. Your deal will be featured in the next issue
of AIRWaves. Also be sure to get your personal bio over
to Art and be a featured member in the newsletter; it's
a great way for everyone to meet fellow members! Call
Art at (805) 653-1648, or email him at artpr@earthlink.net.
We Need Your Photos and Bios –
AIR is in the process of building its database of member
photos and bios. If you would like your photo and bio
to appear on the AIR website at www.airea.com,
please send them via mail or e-mail to Martin,
or if you have questions, call him at (213) 687-8777.
Tech
Tip
WinAIR Forms 2 - Online Demo is available on the AIR Website.
AIR has provided an Online demo featuring some of the major functionality benefits of the WinAIR Forms 2 program. Please click here to view the online demo.
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