Mid-Cities: dwindling supply slows sales and leasing in industrial market.

A lack of supply on the market is keeping industrial property from trading hands in the Mid-Cities region of Los Angeles County even as the shortage pushes lease prices higher.

Sale and lease activity drooped more than 45 percent to 1.06 million square feet from 1.96 million square feet in the first quarter, according to statistics by Grubb & Ellis Co.

What is available is not desirable property, and brokers said tenants aren't willing to pay rising prices for it.

"People are becoming more price-sensitive and they aren't ready to jump at the prices we are seeing, especially potential buyers on the investment side," said Alex Blecksmith, an associate at Colliers International.

Leasing rates rose 2 cents per square foot over last quarter to 57 cents. Most of the activity in the market comes from companies already in the area that want to secure rents, said Mike Foley, a senior vice president at CB Richard Ellis Group Inc.

"Rents are being pushed up, putting a lot of pressure on existing tenants to renew where they are and make places that aren't ideal for them work anyway," he said.

Vacancy rates remained low in the region at about 2.4 percent, consistent with the corresponding quarter last year.

Much of the demand in the Mid-Cities comes from port-related overflow, whether from warehouse and distribution companies, or non-port companies that have moved east of the South Bay for cheaper rent, Foley said.

Though construction is minimal in the area, sales and leasing activity is expected to rise again when the 26-acre Paramount Distribution Center goes to market during the third or fourth quarter of this year. It is being constructed by Irvine-based Birtcher Development & Investments and is slated for completion in mid-2008.

"With the cost of transportation rising and just-in-time delivery services, companies are trying to stay close to people in the L.A. market," Foley said. "They are unwilling to get up and move to the Inland Empire and beyond, but eventually price is going to drive them farther east out of the Mid-Cities market."

MAIN EVENTS

* TA Associates bought a 309,000-square-foot industrial building at 18021 Valley View Ave. in Cerritos for $32.1 million or $103 per square foot. The seller was Washington-based forest products company Weyerhaeuser.

* Kearney purchased a 145,977-square-foot building at 17817 Valley View Ave. in Cerritos from RJ Investment & Realty LLC for $109 per square foot.

* Chicago-based Walton Street Capital bought the 95-property, 23.5 million-square-foot CalWest Industrial Holdings portfolio from the California Public Employees Retirement System for $2.8 billion. A number of mid-cities properties were part of the purchase, including the Cerritos Distribution Center, the Downey Distribution Center, and the Carmenita Business Park.

* Metropolis Partners, acquired a 91,189-square-foot processing building at 14420 Bloomfield Ave. in Santa Fe Springs from Tengu Co. Inc. for $10.5 million, or $115 per square foot, plus $1.5 million for the specialized equipment inside. The nine- year-old building, which includes 5,092 square feet of office space, sits on 4.4 acres. It was vacant at the time of sale.

* Mechanical contractor Wood Group Field Services leased 49,431 square feet of industrial space at 10455 Slusher Drive in Santa Fe Springs. The class B building sits on 2.13 acres in a 67-acre master planned park.

Industrial Market At a Glance

Inventory: 122 million square feet

Under Construction: 330,000 square feet

Asking Rents: 57 cents