LOS ANGELES-If anything changes discernibly in the Los Angeles County industrial market in 2005, it might be an increase in leasing compared with sales in what is one of the country’s largest industrial markets with nearly one billion sf of space and also one of the tightest with a direct vacancy rate of about 2.5% and little sublease space on top of that.Regardless of whether users opt to buy or to lease, however, the expectation is that L.A. County’s industrial space will remain tight because demand is strong and relatively little land is available for new development, comments Chad Jacobson, VP of research and marketing for GVA Daum.Jacobson tells GlobeSt.com that Daum expects the vacancy rate, which dipped about four tenths of a percentage point in the third quarter, to decline further if the economy continues to improve. He says that the relatively small amount of sublease space in the county is not much of a factor, only a quarter to a half of a percentage point. One of the biggest stories in the industrial market throughout Southern California in recent years has been owner-user sales, driven by low interest rates and the availability of capital. Smaller users, especially, have opted to buy rather than lease. While owner-user deals will remain brisk, Jacobson says, leasing may become more appealing to some users in 2005 because rents have remained relatively flat at the same time that building prices have risen dramatically. Average asking leasing rates stood at 54 cents per sf per month triple net in Daum’s most recent surveys, up slightly on a quarter-to-quarter basis and up about 3% on a year-to-year basis.”We think we might see some movement back to leasing in 2005 because prices have risen to the point that it might make sense for some users to lease instead of buy to reduce current their occupancy costs,” Jacobson says. If interest rates rise, he adds, the spread between renting and owning would also widen. Historically, demand for industrial space in Los Angeles has been more balanced between leasing and owning than it has been in the past several years, when it has been more skewed toward owning. “We’re looking for demand to shift more toward a balance between leasing and sales in 2005.” The latest Daum figures show quarterly gross absorption of 3.2 million sf of space, up more than 26% on a year-to-year basis. The tightest submarkets in the county were Central/Southeast and San Gabriel Valley at 3.8% vacancy. Although some new projects are under way, the relatively small amount of land available for new developments means that net absorption gains should outpace the amount of new construction, Jacobson says.

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