LOS ANGELES—The industrial market in northern L.A. and Ventura County is attracting institutional capital—thanks to the ever tightening supply and plummeting vacancy rates averaging 2.4%. With industrial demand higher than ever, the typically owner-operator market is experiencing a shift. To find out more about the market, we sat down with Mike Tingus, the president of Lee & Associates-L.A. North/Ventura office and a market expert, for an exclusive interview. Here, he talks to us about the drivers behind this demand, how tenants are reacting to the tightening supply and why institutional investors are looking to get in on the action.

GlobeSt.com: The market for industrial real estate has been on fire in the L.A. North region bringing vacancies down to 2.4 percent. What's behind all that activity?

Mike Tingus: We're seeing a couple of different dynamics in our markets. First, we're seeing many industrial users expanding. There were several years when companies really were doing no CapX spending, so some of it is pent-up demand, but a lot of it is also plain, old-fashioned growth. Tech companies like Spirent, which we recently relocated into a larger facility, are seeing strong demand for services. I've got another client in a segment of the recycling industry that has really gained traction in the last few years, and then there are more traditional businesses that have simply benefited from the strengthening economy. Second we are seeing new businesses come into the market and we are also seeing businesses that started in a garage who have reached the critical mass they need to move out and into new space.

GlobeSt.com: How are industrial tenants reacting to the lack of space thus far and what do you think will happen with these industrial users going  forward?

Tingus: No question it's frustrating for a lot of tenants. When a business outgrows its current facility and has to make do with the space, it loses some efficiencies, and it can take more time to get the same work done.  Companies are weighing those problems against the added cost of moving, both the physical move and the higher rents that we are seeing in the market, and even if a company decides a move is right, there may not be a space available that will solve its problems. We're seeing some companies add space in nearby buildings, which is not an ideal solution logistically, and we're seeing some who are considering moving outside their chosen submarket. That last option is also not ideal because they may lose at least a portion of their work force with the move.

GlobeSt.com: Ikea just closed on a 12-property acquisition that will effectively remove about 400,000 square feet of industrial properties from Burbank for its new store. How significant is that for the market?

Tingus: The IKEA acquisitions represent about 5 percent of the industrial space in the Burbank marketplace. That may not sound like a lot, but remember that much of the industrial inventory in Burbank was already removed—the old Skunkworks facilities and other smaller industrial parks. Now it's also true that some of these facilities were functionally obsolete in the sense that they had low clearance heights or other things that hinder industrial or warehousing efficiencies, but the San Fernando Valley has always been a place where smaller industrial

could locate, and it's more difficult for those types of users to find alternatives.

GlobeSt.com: How are rents for industrial space being impacted by the tight market and what challenges do you see to these business operations as a result?

Tingus: Well the good news for landlords is that, after a number of stagnant years, rents have risen 15 percent in the past two years. Most industrial users work on tight margins, so that kind of an increase can have a pretty significant impact.

GlobeSt.com: There were 60 industrial buildings sold in the L.A. North region in Q1, more than half the number of sales that took place in all of 2014. Who are the buyers and why have they become so active?

Tingus: The Los Angeles North region has a lot of Class B and Class C properties, and as the market has heated up, institutional buyers have begun turning their attention to those property classes in suburban markets, so this region is really primed for more activity by large private-capital investment companies as well as publicly held REITs. We also in the past quarter saw a large acquisition by a Singapore based real estate investment company that acquired an $8 billion portfolio of properties across the country including 22 properties in our market.

GlobeSt.com: Are there opportunities for more industrial development in the region, and where do you think that will occur? 

Tingus: There, unfortunately, is not going to be a lot of opportunity for industrial development in this region due to the scarcity of land and the price when it does become available. We represent a developer who recently was able to purchase eight acres of land in Thousand Oaks and who is going to develop an industrial condominium park. But mostly I think what we will see are developers renovating existing facilities to better suit today's users.