AIR Foresees Stability, Clarity in 2010 Forecast

In an outlook for Orange County, Irvine-based executive director Rick Ellison of Cushman & Wakefield said that, "The good news is that things are not getting worse." Ellison said that despite overall vacancy in Orange County that is at its highest level since 2003 and asking rates that are down 17.7% from a year ago, industrial vacancy is healthy in the 5%-6.5% range, compared to double digits in 1991. The gap between asking lease rates and tenant expectations is narrowing, user/buyer activity has already increased in 2010, "which we think will continue," Ellison said.

Addressing the Central L.A. submarket, executive vice president Paul Sablock of Jones Lang LaSalle America Inc. said the 4.2% industrial vacancy in Central L.A. starting to get some traction. "We expect to hit the bottom of the market toward the end of the third quarter and vacancies will slow. This will bring clarity and stability and is sparking a quicker start than 2009," Sablock said.

SVP Scott Caswell of Delphi Business Properties Inc. addressed the San Fernando Valley/Valencia market, saying that while vacancy will increase and prices will continue to lower, they will do so less drastically in 2010. Caswell foresees more tenant movement as companies have passed the wait-and-see mode and will "get in motion to make moves that best place them for the future," he said. "There's already a big turn as companies are making hard decisions," Caswell said.

Citing the San Gabriel Valley submarket's demographic strength and solid manufacturing base, EVP and principal Dennis Sandoval of DAUM Commercial Real Estate Services emphasized that "Everyone is looking much closer at the cost of occupancy and sizing." He added that looming environmental regulations are a concern in that market, while the proposed football stadium will create a positive economic impact.

Commenting that there are "lots of deals out there that will be hard to turn down" in Ventura County during 2010, SVP Paul Farry of CB Richard Ellis said that virtually no land sales and new construction took place in 2009, and building availability continues to be high. "We're telling landlords to roll over tenants, yet we see activity picking up, particularly laterally in 2010 following a 10% to 15% drop in lease rates and a 5% to 10% drop in sales rates," he said.

Forecasting lease rates that will decrease or remain flat in the Mid-Counties submarket with increased concessions, principal Cliff Fincher of Lee & Associates said this area will record fewer transactions in 2010. He added that building sale prices are down 20% to 45%, both vacancies and availability are up, though industrial vacancies hover around 5%.

Steve Bellitti, SVP with Colliers International, said the same market dynamics that made the Inland Empire the nation's best market in 2007, state-of-the-art buildings at rock bottom prices, will spark its revival this year. He said 2010 "is expected to be a better year as market forces continue to force a recovery upon us." Vacancy rates are projected to level out and rents will stabilize. "The Inland Empire has been very successful in drawing demand from other regions in the L.A. Basin and this trend will continue," Bellitti said.

Bellitti added that market clarity appeared in 2009 and vacancies have stabilized in the Western portion of the market along with pricing. "We'll see a floor in lease rates soon," he said. He said the big question mark is the Eastern region.

For the South Bay area of L.A., SVP David Drummond of Colliers said 2010 "is expected to be another rough year for our submarket," although, "We look for a turnaround as port volume levels and rents decrease." Vacancy rates in the South Bay have steadily increased over the past year in concert with big decreases in port activity, Drummond said.

On the Westside, "There are preliminary signs of price stabilization in leases and sales," in the industrial market, said Klabin Co. principal Luke Staubitz. Transaction volume, which began building last September, "will continue to increase throughout the year with tenants holding the pocket aces," Staubitz said.

As for the West Side's office market, Keith Fielding of the Klabin Co. predicted continued price compression and thawing in capital markets. "There's a lot of money on the sidelines waiting to buy, but prices are not yet where buyers want them," he said. "An improved economy is needed to spark significant activity," Fielding concluded.