Monday, May 18, 2009

Los Angeles Industrial Market: Slacking Demand and Declining Prices

Carson California Warehouse

709 E Walnut Street, Carson

Commercial Property News reports that in the first quarter of 2009, Los Angeles County's industrial property market had its greatest amount of negative net absorption in nineteen years.

This is the largest quarterly hit to occupied space in the metropolitan area since the first quarter of 1990. This contraction in demand for industrial space increased the availability rate by 100 basis points for the quarter to 6.5 percent. The current economic turmoil is having a large effect on one of the nation’s largest industrial markets. The port is at a standstill, given the drop-off in trade activity, with both imports and exports lacking. And the local consumer is struggling given the pace of job losses and the housing bust.

We can see how all this bad news has an impact across the Los Angeles Basin. Creaky demand has led to declining warehouse prices.

709 E Walnut Street in Carson reveals just how much prices have fallen of late. This 26,250 sq ft warehouse on a 49,615 sq ft lot sold in January 2007 for $3,200,000 ($121.90/sq ft). The property was later marketed and closed in April 2009 for $2,625,000 ($100/sq ft) – an 18% reduction from the previous sale price in only 15 months.

Downtown Los Angeles warehouse
2221 S Main Street, Downtown LA

The “bid ask” spreads on industrial properties have grown wide. 2221 S Main Street in Downtown Los Angeles, a 34,427 sq ft warehouse-manufacturing facility on a 20,473 sq ft lot, sold for $3,662,500 in April 2009, at a 19% discount from its asking price of $4,500,000.

Burbank California warehouse
3116 Vanowen Street, Burbank

3116 Vanowen Street, a 31,195 sq ft vacant owner-user warehouse-manufacturing building in Burbank, sold for $3,500,000, 25% below its list price of $4,648,000. The property, which closed in March 2009, had been marketed since September 2007.

The downward trend in industrial property pricing seems to be building momentum. Big and small businesses are downsizing and cutting costs to survive the current economic climate. Commercial foreclosures are on the rise. Los Angeles’ role as port and distribution center is curtailed as trade with Asia wanes and consumers pull back.

Is there a ‘silver lining’? LA should be one of the first markets to emerge from this mess.

Overall, however, Los Angeles is well positioned to be one of the first industrial markets to recover, owing to limited industrial-zoned land, low levels of new construction and low availability rates. [Commercial Property News]