Monday, May 23, 2011

Southern California Industrial Real Estate - Market Starting to Firm Up!

The industrial real estate market in Southern California is starting to firm up. There is optimism among owners and developers and they are sensing less risk. Two examples of this are the Watson Land Company and The O’Donnell Group, both breaking ground on speculative projects. The O’Donnell Group broke ground on a 64-acre speculative industrial park called Banning Industrial Park that will include 12 buildings totaling over 1.2 million square feet. The Watson Land Company has broken ground on a 616,542 square-foot industrial building in Redlands despite not having a tenant lined up for the property. It is the first speculative industrial building to get underway in the Inland Empire since 2009.

“The absorption rate for larger industrial buildings within the Inland Empire market has increased significantly in the past year,” observed Lance Ryan, Watson Land’s vice president of marketing and leasing. “This has led to a supply constrained market for properties above 500,000 square feet, with continuing strong demand for new product among large corporate users and third party logistics companies.”

Year to date, there have been approximately 375 industrial sale transactions with a value just over $1 Billion Dollars. The average price per square foot was approximately $65 per square foot and the average Cap Rate was around 6.5%. The average size transaction was $6.4 Million Dollars. Demand for well located industrial property remains strong and the prospects for a strong second half in 2011is outstanding. As the economy improves and jobs increase, the industrial market will be the first to feel its effects. Over the next 24 months, jobs should increase, vacancies decrease with rents and values stabilizing and potentially increasing. However, it is a great time for the private investor to buy, as the institutions are for the most part are still on the sidelines.

Remember when investing to make sure the “cash flow” can cover all expenses, including debt, and still provide you with a good return. Also be careful that your “equity” can cover any improvements or re-zoning that is necessary to stabilize the property and do your homework to enhance the opportunity for “appreciation” over the next 5-10 years. And, most importantly, quantify your “risk”. Look at the worst case scenario, loss of tenant and equity infusion for tenant improvement, versus the best case, a long term high credit tenant. Reality is probably somewhere in between. And as always, “location, location, location”.

Article Submited by: Mark Larson President Lee & Associates

3 comments:

freelance writer philippines said...

Although quarterly net absorption was negative, primarily due to user consolidations and relocations, the pipeline of deals is filling and the pace of activity in the marketplace is picking up. Owner/user activity and leases executed this quarter point to stronger net absorption, as firms begin to occupy the spaces to which they have committed. The largest is the build-to-suit for Subaru totaling 413,000 square feet which broke ground this quarter.

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