BUSINESS EXPANSIONS DOWN EXPERTS SAY ACTIVITY COULD BE PICKING UP AGAIN IN 2006.

Byline: GREGORY J. WILCOX Staff Writer

Business expansions plunged 27.5 percent in Southern California last year, but Los Angeles County remained the nation's top industrial market and there are signs that activity is picking up, according to a study released Tuesday.

The drop came as industrial vacancy rates fell to record low levels and the office vacancy rate continued to decline, said the report from the Los Angeles County Economic Development Corp.

Nevertheless, the total investment value of business growth edged up to $1.9 billion from $1.8 billion because strong demand for large blocs of space pushed up rents.

Last year across the six county region from Ventura to San Diego counties, the LAEDC logged 252 major business expansions -- leases of at least $1 million or a building of at least 20,000 square feet -- 96 fewer than in 2004. It notes that the dip is not necessarily bad news but an indication that business caution and higher costs put the brakes on growth.

``What we are hearing from our regional managers is that all of a sudden activity has picked up and they are our real time indicators of what's going on,'' said LAEDC chief economist Jack Kyser. ``Expansion sprung back to life.''

It is being driven by both local businesses and firms expressing interest about moving into the area. Last year three of Southern California's major projects were relocations from states that had been scoring California jobs -- Colorado, Nevada and Texas.

But a scarcity of land for new commercial development poses a growing challenge and concern for the area, the report said, and rising construction materials costs are compounding the situation.

``Basically Los Angeles County is about built out and what we are seeing is this slow erosion of industrial land. It is being converted to mixed-use retail and some residential (uses) and this is a concern,'' Kyser said.

For example, during 2005, industrial building permits valued at $755.8 million were issued in the five-county Los Angeles area, down from $888.9 million a year earlier.

During the 2005 final quarter the county's industrial vacancy rate was 2 percent and some submarkets were lower.

The county has been the nation's top industrial market, as measured by the vacancy rate, for three consecutive years, Kyser said.

The nation's No. 2 industrial market is the Inland Empire. At the end of last year there were 915,900 manufacturing jobs in Ventura, Los Angeles, Riverside, San Bernardino, Orange and San Diego counties, the largest concentration in the nation, Kyser said.

Robert L. Scott, chairman of the Valley Industry and Commerce Association, agrees that the region's stock of industrial land faces severe pressures.

``That's a disturbing trend because the industrial base is what's providing the core of your economy. These are good, well-paying jobs,'' he said.

Last year brought a mixed bag of activity. The LAEDC analysis found that:

-- In Los Angeles County, there were 128 major expansion, 50 fewer than in 2005.

-- The cities of Los Angeles and Irvine remained the leaders, with 28 and 26 major projects, respectively, in 2005.

-- Ventura County's major projects count slipped to 13 from 15 in 2004.

-- The Riverside-San Bernardino area experienced a modest increase in activity, with 38 major expansions in 2005 compared with 37 in 2004.

-- Orange County's major project count dropped by 45 to a total of 73 in 2005.

-- Professional services, including accounting, law, architecture and engineering as well as personnel services, posted the largest number of major expansions in 2005 with 52, up 11 from 2004. Logistics came in second with 26 major expansions, down by eight from 2004. And Los Angeles' flagship entertainment industry had 11 major expansions in 2005, down from 12 in 2004. Aerospace/defense and hi-tech both had nine major expansions compared to 10 in 2004.

Scott said L.A. city officials are aware of the problems posed by the eroding industrial base, and that the Planning Commission intends to hold a special meeting to discuss industrial zoning.

``Deputy Mayor Bud Ovrum is very engaged in that topic,'' he said. ``It's too bad it has to become a disaster before we do something about it.''

Ovrum said the Planning Commission will hold a special meeting March 16 to discuss industrial zoning issues.

``We need to recycle some of these older areas to get more productivity out of them. That's a real hot-button issue for us,'' he said.