San Gabriel Valley has brightest office outlook; Ontario airport district leads the industrial sector; Orange County's recovery will be muted Article by Paul Napolitano The Los Angeles region's office and industrial markets will start to show signs of recovery in mid-2003 as the regional economy begins to rebound, but a total rebound is more than a year away, according to the Casden Real Estate Economics Forecast released by the USC Lusk Center for Real Estate. ''By 2004, the region's office market should be in a full-blown recovery with declining vacancy rates, rising rents and less-generous concessions from landlords whose profit margins will noticeably improve,'' said Dr. Raphael Bostic, director of the Casden Forecast. ''The region's ports and manufacturing sector will begin to improve in 2003, creating more demand for industrial and warehouse space in the Inland Empire, especially in the Ontario airport area, which remains recession proof.'' Bostic pointed out that because of the resiliency of the region's economy, its office and industrial markets have had only a moderate downturn and will have a moderate recovery. ''This relatively benign story for the region masks the great variation in the economic and real estate performance of individual sectors,'' he observed. The Casden Real Estate Economics Forecast analyzed data supplied by Grubb & Ellis, focusing on the Los Angeles County, Orange County and Inland Empire office and industrial markets. A summary of key findings: Los Angeles County Among the county's office markets, the San Gabriel Valley will have the strongest growth starting next summer. ''It has the advantages of relatively low rents, proximity to the downtown business center and strong demand from the business services, finance and real estate sectors, which will lead the county's recovery,'' Bostic said. The mid-Wilshire and San Fernando Valley office markets should also perform well by mid-year due to downtown proximity and affordable rents. The downtown market should start to recover in the middle of the year. The West Los Angeles market will continue to struggle because of the slump in the technology and communications industries. The county's industrial real estate market will have very little growth over the next two years, according to the Casden Forecast. But the market's vacancy rates are expected to remain very low and its rents stable this year. Orange County Orange County's office market should begin to rebound in 2003 from a steep downturn that saw vacancy rates peak at 15 percent and rents plummet 20 percent. Net absorption has recently turned positive, asking rents for Class A properties have started to rebound and vacancy rates have declined somewhat. But the recovery will be slow. A huge supply of space, totaling more than 1.5 million square feet, came on the South County market over the past three years, and it will take at least two years for this space to be absorbed in areas such as Aliso Viejo, Ladera Ranch and San Clemente. ''On the positive side, South County will continue to be Orange County's fastest-growing market, with more businesses locating there and more homes being built,'' Bostic said. The county's industrial market has been hurt by high-tech exposure and a slowdown in non-durable manufacturing while being helped by the large presence of trade-oriented companies and businesses. ''Industrial rents and vacancies should remain relatively stable through the third quarter, when rents will start to increase and vacancies will begin to decline as the region's economy recovers,'' Bostic said. Inland Empire The Inland Empire's office market should show strong growth this year. Vacancies will fall and rents increase at an accelerating rate this year and into 2004. The trade-based Ontario Airport and San Bernardino and Riverside office markets will have the strongest growth. The western-edge office market, at the junction of the Inland Empire and Los Angeles and Orange counties, should start to recover in the summer. The Inland Empire is the most trade-dependent market in the Los Angeles region, and the strong performance of the region's trade sector bodes well for this market. The most striking indicator of the power of the Inland Empire economy is that the national recession hardly dented the lease asking rates for warehouse space. In the Ontario submarket, demand for industrial space has remained strong through the recession, leading to downward pressure on vacancy rates and upward pressure on lease asking rates. Growth will be more restrained, however, in Fontana because the manufacturing sector will be slow to recover as more work is sent overseas.
