RealShare EXCLUSIVE: Industrial Market Healthy, Industrial Condos Hot

LONG BEACH, CA-More than 175 industrial players gathered at the Long Beach Marriott Hotel yesterday to discuss trends, niches and what the future holds for Southern California’s industrial market. RealShare Industrial West, a two-day event, included a lively discussion between Real Estate Media’s group managing director, Michael G. Desiato, and Jim Curtis, co-founder and principal of San Francisco-based Bristrol Group Inc. and concluded with a boat tour of the Port of Los Angeles. Real Estate Media produced the event.But much of the day’s activity centered on the strength of the industrial market. It is better than it has ever been, with vacancy rates below 5% throughout the Southland, according to David Drummond, senior vice president at Colliers-Seeley. Drummond, who sat on a panel titled “The Outlook for Leasing, Investment and Development in Southern California Industrial Real Estate,” predicts a lack of developable land and high demand combined with low vacancy will eventually hike rents 10% to 20%.Also on that panel, Terry Reitz, senior vice president with Grubb & Ellis, noted that in the South Bay, he has seen a 20% increase in rents within the last two years, along with heightened leasing activity. “What’s driving this activity is international trade with the Port of Los Angeles,” Reitz said. The scramble for land, especially competition with residential developers for available space has driven prices up substantially over the last few years in some submarkets. Another panelist, Peter Bacci, principal with Lee & Associates, noted that in Downtown Los Angeles, prices for industrial space have gone from $28 per sf to $80 per sf within the last two years and doesn’t show any real signs of level. “The residential loft conversions are pushing land prices up. If interest rates go up, it may slow it down,” Bacci said.The possibility of a market bubble was discussed, most agreeing that it does not pose a real threat to the industrial market, though interest rates, if they rise, will. “The long-term rates have stayed low, but when they go up it’s going to have an impact everywhere,” said Michael Gottlieb, of George Smith Partners. “The magic question is, ‘When are rates going up?’ We don’t know.”In another topic, titled “Industrial Condos: How Small Business Are Impacting the Market,” industry insiders opined on this relatively new niche in the industrial market. According to the panelists, the industrial condo has experienced increased activity within the last seven years. Fueled by small business owners with a desire to own their own land and high construction costs, the market for small parcels has exploded. Alan Airth, managing principal with the Koll Co. moderated the industrial condo panel and said that there currently doesn’t seem to be any leveling out in terms of demand for the parcels, which range from 2,000 sf to 5,000 sf. However, it was noted that a threat of rising interest rates combined with construction costs could affect the market. Hurricane Katrina is expected to hike construction costs across the board. “So far, we have not seen interest rates stymie people’s desires to buy. Record high land prices and construction costs prices are going to go up, said James Camp, senior vice president of development and acquisitions of Voit Development Co. “We may be at or near the top [of the market], though I could argue both sides.”