Rapidly Improving Santa Clarita Industrial Market Spurs New Construction

Several developers are readying their shovels in the Santa Clarita Valley after companies leased large swaths of industrial real estate last year. In a recovery filled with hiccups, builders are hoping the latest uptick is real. “The market has been very, very tight,” Vice President Tim Regan of LNR Property LLC said. “A lot of users were waiting on the sidelines delaying decisions.” However, now they are seeing a turnaround and are willing to move, he added. In the Santa Clarita Valley submarket, the vacancy rate stood at 5.4 percent in the fourth quarter of 2011, down 1.4 percentage points from the same period in 2010, according to Jones Lang LaSalle. The submarket absorbed more than 238,000 square feet of industrial space last year. That was an impressive turnaround compared with 2010, when tenants vacated 455,000 more square feet than they moved into. “That market has been seeing the most activity than any other,” said Executive Vice President Nigel Stout of Jones Lang LaSalle. The Santa Clarita Valley has long been a desired area for industrial businesses because of its new crop of buildings with high ceilings and modern amenities. When a San Fernando Valley firm is looking for an upgrade, they often find it to the north. Last year, the Santa Clarita market was helped by a slowly improving economy, brokers say. The unemployment rate declined one percentage point in Los Angeles County to 11.6 percent in December when compared with a year earlier, according to the U.S. Department of Labor’s Bureau of Labor Statistics. But a lot of the headway in the Santa Clarita submarket was the result of one company’s heavy leasing activity. AMS Fulfillment, a Valencia-based third party warehous-ing firm, leased about 500,000 square feet of industrial space last year in the Santa Clarita Valley, largely helping to shave the vacancy rate. In February, the firm inked two more deals totaling about 160,000 square feet. Brokers say there is few, if any, larger blocks of space left in the area after AMS took them over last year. Jonas Peterson, president of the Santa Clarita Valley Economic Development Corporation, said the lack of vacant large industrial buildings has forced some businesses to look outside the area or toward a build-to-suit option. LNR hopes to change that by putting its stalled industrial project into high gear. The firm plans to break ground on a four-building, 525,000-square-foot industrial park in late spring or early summer. The new project should hit the market during the first quarter of 2013, Regan said. The company declined to say how much the industrial development would cost to build, but said it owns the 38 acres it will be located on and that a loan will finance the construction. The buildings will be a mix of speculative and build-to-suit projects, Regan said. As planned now, the project will include a 260,000-square-foot building, a 110,000-square-foot building, a 90,000-square-foot building and a 60,000-square-foot building. Avalon Investment Co. also is planning a 45,000-square-foot speculative project just north of the LNR project. Disney’s new studio project and Newhall Land’s new master planned community will push up demand in Santa Clarita even further, Avalon Vice President Weston Cookler said. Valley-wide rents should rise this year about 5 to 10 percent as the economy slowly improves and inventory remains low, Stout of Jones Lang LaSalle said. But speculative development will still be a challenge. “The challenging thing is, ‘Do you wait for a build-to-suit or (do) speculative development?’” Stout said. For a speculative project to truly make sense, Stout said, rent needs to rise about 20 to 25 percent, a level that brokers have not forecasted. Regan said LNR — a mega corporation once part of Lennar Corp. — has easier access to financing than if a company wished to build a single speculative development. But although lenders remain skittish of construction without a tenant lined up, new development is coming, Stout said. “We are moving in the right direction,” he said.