USC economists are optimistic that current economic trends bode well for Southern California's industrial and office real estate markets in the coming year. The Casden Real Estate Economics Forecast for 2005, released today by USC's Lusk Center for Real Estate, predicts that office and industrial vacancy rates will gradually decline as job growth picks up in the coming year. The report forecast modest increases in rental rates for office space and stabilizing industrial lease rates in the coming year. "We've come through the recession with new job growth and optimism that the economy will continue to grow at a slow and steady pace,' said Delores Conway, who recently took over as director of the Casden Forecast. The San Gabriel Valley, which has 18 percent of Los Angeles County's industrial space, has some of the lowest industrial vacancy rates in the region, according to the report. The industrial vacancy rate fell to 1.5 percent in the third quarter of 2004 from 2.2 percent the previous year. With supply limited by absorption of 2.2 million square feet of industrial space, the average lease price increased 2 cents to 48 cents per square foot. "It's the industrial part of the San Gabriel Valley that is really looking good,' said Conway, who attributed tiny vacancy rates largely to a growing concentration of small- to medium- size firms doing business with Asia. Throughout the area, vacancy rates were extremely low, from 0.5 percent in Pasadena to 2.6 percent in the central part of the San Gabriel Valley. Low vacancy rates will continue to push firms toward the Inland Empire, said Conway. "Job creation in key sectors, such as durable goods manufacturing and logistics, will keep demand for industrial property strong,' in the coming year, Conway wrote in the report. Office vacancy rates, lease rates and absorption for the San Gabriel Valley, which has 8 percent of the county's office space, all remained relatively stable in the third quarter. Vacancy rates stood at 11.76 percent, up 0.26 percentage points from the year before. Asking rents fell 8 cents to $1.94 as the net change in occupied square footage fell slightly by 483 square feet from the third quarter of 2003. "It looks like things are very flat, but if you look beneath the surface, there are a lot of good things happening,' said Conway. "After showing signs of strength,' the report forecast that Pasadena, which it considers part of a separate submarket alongside Glendale and Burbank, would continue to see rising rents and declining vacancies for office space in the coming year. "It's significant because they are developing office space in Pasadena and that really isn't happening anywhere else in Los Angeles County,' she said.
December 1, 2004