New warehouses an indication of strength in industrial market. (Real Estate Quarterly -- Mid-Cities).

THE effect of low interest rates continues to be felt in the gritty industrial expanse sandwiched between the Long Beach (710) and San Gabriel River (605) freeways as owner/occupiers took more space off the market.

The Mid-Cities' industrial vacancy rate dropped to 2.8 percent in the second quarter, down from 4.1 percent in the first quarter and 6.1 percent in the year-ago period, according to Gruhb & Ellis Co.

At the same time, sales and leasing activity slipped by 10 percent sequentially to 1.7 million square feet in the second quarter. The decline in both vacancies and sales and leasing activity was attributed to new warehouses coming online that were purchased in previous quarters. The warehouses are counted as occupied, lowering the overall vacancy rate, but the sales were chalked up in previous quarters.

Demand for warehouse and industrial space in the port-adjacent market has emboldened developers to put up more space.

"There's something like 40 buildings in 12 projects in different stages of development and most of those have already been sold because of the strong market," said John Biven, a vice president at Insignia/ESG.

As the new buildings have opened, average asking rents have increased as well. The asking rate hit 52 cents a square foot -- 3 cents a square foot higher than in the previous quarter. Building owners are still offering discounts and concessions, like free rent, to woo tenants.

"(Owners) are getting a little more aggressive," said Pat Welsh, a vice president in Trammel Crow Co.'s Commerce office. 'They are trying to keep rents up but they are offering more in the way of free concessions."

With owner/occupiers taking the new product, area brokers said there was no lack of interest in the space they vacated.

Rick McGeagh, a CB Richard Ellis senior vice president, said his firm hadn't seen as much activity since the first quarter of 2001.

"It was really encouraging," he said. "The leasing activity for buildings over 100,000 square feet was extremely strong. There was a slowdown in March when everything went on hold because of the war, but as it wrapped up we saw a lot of sales take off."

In June, Southern Wine & Spirits of America Inc. and warehouse management firm Service Craft Logistics, a subsidiary of private equity investment firm Code Hennessy & Simmons, expanded their occupancies with new leases of 120,000-square-foot and 140,000-square-foot warehouses, respectively.

Southern Wine signed a three-year deal for its Knott Avenue building in Buena Park and Service Craft agreed to a five-year lease for the building at Valley View Avenue and Alondra Boulevard in Santa Fe Springs.

Also in June, Nishimoto Trading Co., an importer of Asian food products, moved its West Coast operations from Commerce to a new 219,000-square-foot facility at 13409 Orden Drive at the Golden Springs Business Center in Santa Fe Springs. The company signed a 10-year lease.

Home Depot Inc. signed a five-year lease for a 274,000-square-foot warehouse at 6700 Artesia Blvd. in the Mid-Counties Distribution Center, a Buena Park industrial park being developed by ProLogis.

And Champion Transportationf/A.P. Express -- a third party logistics company based in Hawthorne -- will move its headquarters to a 100,000 square foot facility at 11333 Greenstone Ave. in Santa Fe Springs.

There was one sale of a property larger than 100,000 square feet in the quarter. RREEF, a real estate investment advisor, acquired a 174,000 square foot warehouse on Shoemaker Ave. in Santa Fe Springs from Northwestern Mutual Life Insurance Co. in May. The value of the deal was estimated at $10 million.

Despite being dominated by industrial space, the Mid-Cities region boasts 5 million square feet of office space, which leases on average at $2 a square foot.

Memorex Products Inc. signed the only large office deal of the quarter, agreeing to take 20,000 square feet on the top floor of TransPacific Development Co.'s new 164,000 square foot building in the Cerritos Towne Center.

RELATED ARTICLE: Major Events:

* Southern Wine & Spirits of America Inc. signed a 120,000-square-foot, three-year deal for a Knott Avenue building in Buena Park.

* Service Craft Logistics leased 140,000 square feet for five years at a building in Santa Fe Springs.

* Nishimoto Trading Co. signed a 10-year lease at a new 219,000-square-foot facility at the Golden Springs Business Center in Santa Fe Springs.

* Home Depot Inc. signed a five-year lease for a 274,000-square-foot warehouse in Buena Park.

* Champion Transportation/A.P. Express sublet a 100,000 square foot facility at 11333 Greenstone Ave. in Santa Fe Springs.

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