California Apparel News

Wholesale

The Los Angeles industrial real estate market finished 2006 as the tightest market in the country with a mere 1.5 percent in vacancy, according to Los Angeles–based Grubb & Ellis real estate. Port traffic was at record levels in 2006, and that contributed to busy warehouses across California. International trade is expected to increase $60 billion, to $560 billion in 2007, said Grubb & Ellis executives, citing trade data.

Average rents grew a nickel per square foot in 2006. Sales and leases for the fourth quarter totaled 7.9 million square feet, a 25 percent decrease over the previous year.

Grubb & Ellis executives said most of the available property can be found in the San Gabriel Valley and Santa Clarita submarkets. For apparel importers and distributors looking in traditional submarkets such as Vernon, Commerce and downtown Los Angeles, there were slim pickings with a 0.9 vacancy rate. In the South Bay, a key strategic submarket for inbound container traffic from the ports of Los Angeles and Long Beach, vacancy rates slipped to 1.8 percent, resulting in rent increases of 6.7 percent to an average of 60 cents per square foot.

In Orange County, where most of the country’s leading surfwear manufacturers are based, industrial vacancies fell to 3.5 percent from 3.8 percent for the fourth quarter. More than 5 million square feet traded hands, evenly divided between leases and sales. The tight market should be helped in the future, with more than 1 million square feet of warehouse and other industrial space under construction. Average rents were at 87 cents for the fourth quarter.

The Inland Empire remained the country’s busiest construction area because of the record levels of international trade. More than 21 million square feet were under construction at the end of 2006, a 9 percent decrease, but it was still the busiest area in the country. Many apparel manufacturers and retailers maintain key distribution centers in the Inland Empire. Key leases signed during the fourth quarter included one by Payless Shoes for a 415,000-square-foot building built in 2006. The construction helped increase vacancies to 4.4 percent from 2.7 percent for the fourth quarter. Average rents finished at $4.80 per square foot.

Retail

Retailers will find tighter conditions throughout 2007, according to San Francisco–based Marcus & Millichap real estate. Executives at the brokerage said retailers have themselves to blame, as healthy demand for store space has resulted in decreasing vacancies. That will allow landlords to raise rents.

“While overall job growth in the metro area is forecast to slow this year, gains in the traditionally high-paying professional and business-services sector should lead to a boost in disposable income,” noted Lane Schwartz, regional manager of Marcus & Millichap’s Los Angeles office. “Long-term demand drivers remain quite strong and will continue to support robust retail market fundamentals.”

Retail vacancy in the Los Angeles area is forecast to decline 30 basis points to 6.8 percent this year, after a 100-basispoint decline in 2006. Asking rents are expected to rise 4.1 percent to $28.94 per square foot, while effective rents will gain 4.3 percent. Developers are expected to increase inventory 1.1 percent by adding 3.7 million square feet of retail space this year, after delivering 3.1 million square feet in 2006. Investor demand for Los Angeles retail properties will remain elevated this year, as the area’s prospects for sustainable long-term growth continue to bring buyers to the metro area, said Schwartz. Orange County retail space is expected to increase 70 basis points to 4.4 percent because of new construction. San Francisco is also healthy with an improving economy. Vacancies there are also at 4.4 percent