Tight industrial market sends tenants to outlying areas.

THIRD quarter industrial real estate activity in the Mid-Cities area reached a peak not seen in recent years, as tight surrounding submarkets drove tenants seeking large spaces to Pico Rivera and Santa Fe Springs.

Sales and leases in the corridor running from the ports of Los Angeles and Long Beach to just south of downtown Los Angeles totaled 3.1 million square feet in the July-September period, according to Grubb & Ellis Co. That was 54.5 percent higher than the 1.9 million square feet bought and leased in the second quarter and 63.5 percent higher than the year-ago period.

Lease rates also were on the rise as activity picked up after several years of low interest rates prompting users that serve port importers to purchase rather than lease warehouse and distribution space larger than 150,000 square feet.

"This was a uniquely active quarter for this area," said John Biven, first vice president at CB Richard Ellis Group Inc. "It was the highest total activity we've tracked out there in over 10 years."

That was reflected in the region's 3.4 percent third-quarter vacancy rate, which fell from the second quarter when vacancies were at 4.3 percent.

It also was reflected in the net absorption rate, which was significantly higher in the third quarter, with 1.1 million square feet of space taken off the market. That reversed negative net absorption of 472.000 square feet in the prior quarter, when large chunks of space at several new large business parks came on the market.

The resurging market for industrial leases was evidence of the continuing drive by investors for warehouse and distribution space serving the surge of imports from Asia coming into the ports of Los Angeles and Long Beach, said Cameron Merrill, a commercial broker at CB Richard Ellis.

And with other nearby submarkets like Central Los Angeles and the San Gabriel Valley sporting vacancy rates at or near 1 percent, that meant renewed interest in Mid Cities.

"The leasing market was weak for about a year and a half, and it's become very solid now. The vacancy rates are very low, and people who were trying to buy buildings are just not finding them anymore, so they're turning back to leasing. Sale prices are still absolutely through the roof," Merrill said.

Among the largest transactions, St. George Warehouse Inc. leased 454,800 square feet at the 265-acre Golden Springs Business Park in Santa Fe Springs. The third-party logistics company, represented by CB Richard Ellis, signed the lease in August for an undisclosed sum.

Rancho Cucamonga-based furniture retailer Living Spaces leased a 277,564-square-foot industrial building in La Mirada from Irvine-based LBA Realty Corp. for an undisclosed sum. The building will be converted into a warehouse-style retail store with three acres of additional land for a customer parking lot. The store, on the site of the former manufacturing facility owned by Crown Cork & Seal Co. on East Artesia Boulevard, is set to open in the first quarter of 2006.

Also, Los Angeles-based Mojave Foods Corp. signed a 105,000-square-foot expansion and extended its existing 108,000-square-foot lease in Pico Rivera from INC Clarion Real Estate Securities LP for 39 cents per square foot triple net, which leaves the tenant to pay taxes, insurance and maintenance.

Elkay Plastics Co. Inc. leased a 184,339-square-foot Class-B warehouse and distribution space on Sheila Street in City of Commerce. The plastic bag manufacturer serving the food services and health-care industries leased the freestanding building from Denver-based Alliance Commercial Partners LLC for 38 cents per square foot.

The increased demand for warehouse and distribution space larger than 100,000 square feet and the ongoing lack of developable land is raising rents and tipping the market in favor of landlords, as well as sellers in the few sales transactions, said John Biven, first vice president at CB Richard Ellis.

"The current trend among landlords is decreasing rent concessions," he said. "There is not a tremendous amount of development on the horizon because the land is limited."

Among the submarket's few sales transactions, La Habra-based appliance retailer Howard's Appliances Inc. bought a 172,344-square-foot warehouse building in Pacific Gateway Business Center from Robertson Properties Group in Pico Rivera. Robertson, the real estate development arm of Los Angeles-based Pacific Properties Corp. demolished a Pacific movie theatre on the site about two years ago.

"It's a good time for sellers, and a challenging time for institutional investors to find product," Biven said.

Major Events:

* St. George Warehouse Inc. leased 454,800 square feet of warehouse and distribution space at Golden Springs Business Park in Santa Fe Springs for an undisclosed sum.

* Living Spaces leased 277,564 square feet from LBA Realty Corp. in La Mirada for an undisclosed sum for a warehouse-style furniture retail store.

* Mojave Foods Corp. signed a 105,000-square-foot expansion and extended its 108,000-square-foot lease in Pico Rivera from INC Clarion Real Estate Securities LP for 39 cents per square foot.

* Howard's Appliances Inc. bought a 172,344-square-foot warehouse building in Pacific Gateway Business Center from Robertson Properties Group in Pico Rivera for $76 per square foot.