"We're going through a pause," she tells GlobeSt.com. "It's a time to catch our breath and prepare for the next wave. Most industrial developers are welcoming the slowing. The pace has been almost too fast. All this money has been pouring in, and sales and lease activity has been unbelievable. I think most people agree we need a break to catch our breath and assess what the next steps should be."
The Lusk Center released the 2008 Casden forecast in mid December based on statistics from the first three quarters of '07. But Conway assures that nothing has happened since October to alter the report's findings. "Demand remains solid on both the sales and leasing ends. Cap rates are holding. Rents are holding. It's more a question of slowing acceleration than deceleration," she says.
The Grubb & Ellis 2008 forecast, released in early January, paints the industrial sector as the region's current investment favorite, overtaking multifamily. The report says busy ports,extremely low vacancy rates and steady demand make industrial product the current "Energizer bunny." In Los Angeles County, land scarcity dropped construction activity to roughly three million sf, which represents less than one third of 1% of existing inventory. As a result, vacancies fell to 1.6%, the lowest rate in the US. However, Conway says some of the shortage was created by acquisition of industrial sites for residential and retail development. With those sectors losing favor, more land should become available for industrial construction, though probably not enough to satisfy demand.
Land scarcity is less of a problem in the Inland Empire, where the Grubb report shows '07 vacancies climbed to about 5.2% from 4.4% in '06 thanks largely to more than 20 million sf of new construction. But most of the development occurred in the Empire's eastern half as the area west of Interstate 15 approaches build-out. Master Development Corp., which has developed 28 buildings in Corona since '03, recently made its first value-add acquisition in the city immediately west of I-15 as redevelopment became a more viable alternative to new development there. The Newport Beach, CA-based company paid $9.2 million for two buildings totaling 100,020 sf.
If there is any serious concern about the region's future, it lies in the possibility of a downturn at the ports of Los Angeles and Long Beach. According to Grubb, the combined ports account for 40% of US imports, and Conway says reduced imports due to a steep drop in consumer purchasing would have a negative impact on the market. Increased diversion of goods to ports in Mexico and on the Gulf and East coasts could also weaken the market, she adds. The total number of 20-foot equivalent units handled through November was down about 1% compared to the preceding year, but the unofficial figure for Long Beach indicated a slight increase for the same period.
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