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Demand, Rising Rents Like '80s, Study Shows


The '80s are back--sort of--as far as the Southern California commercial real estate market is concerned, according to a study released today by an industry group.

Heavy demand for industrial and office space coupled with slow growth in supply are translating into extremely low vacancy rates and high rents, the likes of which have not been seen this decade, according to the study by the Society of Industrial and Office Realtors.

The difference this time is that appreciation in rents and property values is more steady. Though some analysts fear overbuilding could be on the horizon (see story on D8), developers have not yet rushed an overabundance of new buildings onto the market, say local brokers who researched the Southern California segment of the national report.

"It's been a long time coming . . . but the recovery is here," said Chris H. Stauff, statistics chair of the Los Angeles chapter of SIOR and a partner in Culver City-based Commercial Property Group. "It's not better yet [than the 1980s], but it's getting as good as, which is phenomenal.

"All our researchers feel that both sales and lease rates will continue to increase considerably and soft market concessions will become difficult to obtain," Stauff said.

The trade group's study quantifies what brokers have been seeing across the Southland: Industrial and office space can be difficult to find, and pricey.

Industrial space is hardest to locate on the west side of Los Angeles, where the vacancy rate was only 3% in 1997, down from 12% in 1995. The overall industrial vacancy rate was 5.3% in Los Angeles County, down from 8.3% in 1995, and 6.9% in Orange County, down from 12.9%.

Demand also is increasing for office space, with a low of 8% vacancy in the San Fernando Valley and a high of 22% in the South Bay. In Los Angeles County overall, the office vacancy rate in 1997 was 15.3%. In Orange County, the rate was 10.7%.

Industrial lease rates have risen at least 30% in many markets and have doubled in some markets, such as West Los Angeles. Office rents have more than tripled in some popular areas.

So far, the pace of construction of industrial and office space does not match the wild building of the 1980s.

About 15 million square feet of industrial space is under construction, compared with a total inventory of 1.45 billion square feet in Los Angeles, Orange, Ventura, San Bernardino and Riverside counties. Only about one-third of the industrial construction is in Los Angeles County, "so in some places, we're actually in a shortage mode," Stauff said.


Industrial Strength

Industrial vacancy rates in Southern California have fallen to levels not seen since the 1980s, thanks to heavy demand and a slow increase in supply.


West Los Angeles: 12.0%

South Bay: 9.0%

San Gabriel Valley: 9.1%

San Fernando Valley: 6.0%

Central Los Angeles: 9.5%

East Los Angeles: 4.5%

Ventura County: Not available

Orange County: 12.9%

Inland Empire*: 6.5%



West Los Angeles: 9.0%

South Bay: 8.0%

San Gabriel Valley: 6.1%

San Fernando Valley: 4.2%

Central Los Angeles: 7.1%

East Los Angeles: 4.5%

Ventura County: 9.2%

Orange County: 9.6%

Inland Empire*: 4.9%



West Los Angeles: 3.0%

South Bay: 6.0%

San Gabriel Valley: 4.5%

San Fernando Valley: 4.0%

Central Los Angeles: 6.8%

East Los Angeles: 4.0%

Ventura County: 9.0%

Orange County: 6.9%

Inland Empire*: 5.0%

* Riverside and San Bernardino counties

Source: Society of Industrial and Office Realtors

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