Strong demand for industrial space spurs on Mid-Cities market.

The purchase of a Lever Bros. soap manufacturing plant in the city of Commerce and a speculative development in Bellflower during the first quarter illustrated what brokers say is strong demand for industrial space in the Mid-Cities market. Meanwhile, the Mid-Cities office market continued to tighten, as brokers worked primarily on small "fill-in" deals.

The Lever Bros. plant, located on a 32-acre site with approximately 626,000 square feet of industrial buildings along a half-mile frontage on the Santa Ana (5) Freeway, was sold by Lever Bros. to Sanderson-J. Ray Development, an Irvine-based developer that plans to subdivide the property into retail and industrial parcels. Lever Bros. had been phasing out the plant and was occupying only a portion of it at the time of the sale.

According to Scott Heaton, a Seeley Co. vice president who represented both Lever Bros. and the buyer in the deal, the sale actually involved two transactions. First, Lever Bros. sold the 32-acre property to Sanderson-J. Ray. Second, Sanderson-J. Ray sold 10 of the 32 acres, including 226,000 square feet of industrial space, to Vernon-based Peyk International.

The Mid-Cities market, also known as the Mid-Counties market, includes the L.A. County cities of Commerce, Paramount, Santa Fe Springs, Bellflower, Norwalk, La Mirada, Artesia, Downey and Whittier, as well as the Orange County cities of Cypress, Los Alamitos, Cerritos and La Palma.

Brokers said demand for industrial space has remained strong during the second quarter because most of the big-box warehouse buildings - for which demand is strongest - have been occupied, and there is no new speculative development in sight.

Lenders still hesitant 

According to Jim McFadden, an industrial broker with Grubb & Ellis Co., the Mid-Cities market remains tight because most of the large Class A spaces have been filled, yet lenders are still reluctant to finance construction of new speculative buildings.

The Mid-Cities industrial vacancy rate stood at 9.9 percent at the end of the first quarter, according to Grubb & Ellis, reflecting a steady downward trend over the last year. By comparison, the industrial vacancy rate was 10.8 percent at the end of 1994, and 11.7 percent at the end of the first quarter of last year.

Although the overall industrial market remains strong, brokers and developers pointed out that the strength of demand differs substantially, depending on the size and condition of buildings.

"If you want Class A space, there is not a lot of it out there," said Chuck Lyons of Paramount-based developer Fu-Lyons Associates, which has begun construction of a 7.43-acre industrial business center at the southeast corner of Rosecrans Avenue and Lakewood Boulevard in Bellflower.

Lyons said there is still "a lot of functionally obsolete space that is sitting on the market."

He added that, when he went looking for a 40,000-square-foot industrial space in the Mid-Cities for one prospective tenant, he found only three available properties that qualified as "good space."

Demand up for small spaces

Lyons, whose company specializes in small industrial spaces ranging from a few thousand to 25,000 square feet, said Fu-Lyons is developing its speculative project in Bellflower because demand for smaller spaces has increased.

"For the first time since 1989, we're actually getting (consumer price index) increases in our rents," he said. "Until now, we've really had to haggle to get our price. And in some cases, we've had to lower rents."

The Fu-Lyons project has been designed to include 13 free-standing manufacturing buildings for lease, according to Lyons, who said the buildings will range in size from 9,605 square feet to 17,504 square feet, with larger requirements of up to 26,471 square feet able to be accommodated by combining contiguous buildings.

Like tenants in big-box structures, Lyons said, smaller tenants today are demanding more and better loading and storage clearances, so buildings in the new project have been designed to provide a 105-foot turn-around radius for trucks, container storage capability, a minimum of 21-foot-high truck clearances, modern sprinkler systems, and upgraded electrical, natural gas and waste disposal facilities.

Although Fu-Lyons has not signed any tenants yet for the new development, Lyons said he is confident sufficient demand exists because the company's other projects, which include more than 1 million square feet of industrial space in 100 buildings, are nearly 100 percent occupied.

Preleasing is rough

"It's hard to do preleasing on small spaces like this," Lyons said. "You almost have to have the building finished to get some of the smaller tenants to sign up."

Financing for the deal probably would have been nearly impossible to arrange, he added, if it weren't for the long-term relationship Fu-Lyons has had with its Chinese lender on the project, Oversea-Chinese Banking Corp. Ltd.

In the Mid-Cities office market, most of the large Class A spaces are occupied, and the deals now being signed are primarily small, fill-in leases, according to Terry Reitz, a senior vice president at the South Bay office of Grubb & Ellis.

Grubb & Ellis first-quarter figures showed the office vacancy rate to be 14.35 percent, down from 18 percent a year earlier and relatively unchanged from 14.65 percent at the end of 1994. Despite the big decline over the past year, Reitz said the vacancy rate will probably decline more slowly this year because most of the large spaces have been filled and deals this year will be smaller.