Tuesday, May 27, 2008

First Quarter 2008 Los Angeles Basin Industrial Report

Net Absorption Rebounds In First Quarter,
Construction Activity Continues To Slow

Positive net absorption (+1.3 Million SF) in the Los Angeles Basin for the first quarter of this year was due to a handful of very large deals in the East Inland Empire (Whirlpool’s 1.6 million SF lease in Perris, United Foods 613,200 SF lease in Moreno Valley and Kohler’s 480,300 SF lease in San Bernardino). These large transactions were enough to compensate for negative net absorption that occurred in other markets.

Construction activity continued to slow in the first quarter, only 16.7 million SF of industrial space was underway at the beginning of the year. This is down from 19.8 million SF under construction during the previous quarter and down significantly from 31.2 million SF under construction from this same time last year. The vast majority of the construction activity underway continues to occur in the Inland Empire, the last developable region of the Los Angeles Basin.

Here is the full report.

The Los Angeles Basin Industrial Report combines all the industrial reports to give a complete overview for the region.

For the region, things are fine. There is pain in most individual markets however, but several large deals in the East Inland Empire kept net absorption positive, for this quarter at least. I expect negative absorption for next quarter though, and for vacancy to rise and for asking lease rates to drop.

This is based on what I have seen so far, but I have been wrong in the past. I was expecting the worst to happen this last quarter, but a few outliers (3.2 million SF of outliers this quarter) kept the region in the black.

Statistics and averages do not matter much when the universe is built around extremes, as is the case with the large buildings I track. These buildings are usually either 100% full or 100% empty.

A 4.4% vacancy rate for the region does not provide landlords with vacant buildings much useful advice; for them the vacancy rate might was well be 100%.

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