With one participating expert cautiously declaring "it's beginning to feel like 1989 again," high demand for industrial space, escalating rents and historically low vacancies are expected to continue through 1998 in the Los Angeles Basin commercial real estate market, a major industry panel reveals.

The American Industrial Real Estate Association's recent Fifth Annual Real Estate Market Review and Forecast headlined six experts commenting on key regional submarkets from Ventura County to the Inland Empire. Over 200 people attended.

The South Bay submarket enjoyed one of its best years in 1997, according to Peter Toughill, president of Lee & Associates/South Bay. He said 12.2 million sq. ft. of space was leased or sold during the year, with a vacancy rate down to six percent. Toughill added that new development is emerging and rents are expected to spike up five to six percent in 1998.

David Hess, associate director, Cushman & Wakefield, reported that the vacancy rate in the Central L.A. market is 5.6 percent, the "lowest since I've been in the market." He said 16 million sq. ft. of space was absorbed during 1997, twice the normal average.

Hess notes that lease rates increased over 12 percent in 1997, while sales prices rose 15 percent. "Rents will continue to go up and for the first time in eight years we'll see double digit land price increases and substantial renovation of older buildings. It's beginning to feel like 1989 again, except today we understand that prices can go down," he declared.

In the San Fernando Valley, vacancies are at an all-time low and rents are escalating sharply in light of a shortage of land, Barbara Emmons, first vice president, CB Commercial, reported. She noted that for the first time, we'll see movement from this submarket to the San Gabriel Valley.

Emmons revealed that 6.75 million sq. ft. of spec development is planned in 1998, with Valencia and Ventura County leading the way. "Valencia will top the list with land prices rising fast," she said.

Emmons adds that Ventura County has an eight percent vacancy and one million feet underway. "There's no risk of overbuilding industrial space; office space is another issue," she added.

The Mid-Cities and north Orange County submarkets showed 6.1 and 9.4 percent vacancies, both down, according to Bob Crenshaw, senior vice president, Grubb & Ellis. He said over four million sq. ft. is planned or to be built in Mid-Cities during 1998, justified by absorption that is up 20 percent.

"Large building space will be market driven, rather than building driven," Crenshaw noted.

Commenting on the San Gabriel Valley and Inland Empire, Peter McWilliams, vice president/manager of The Seeley Company's Ontario office, said an all-time high of 9.2 million sq. ft. was absorbed in the former submarket during 1997, a region he said has an all-time low 6.8 percent vacancy.

"We anticipate tremendous spec development in the San Gabriel Valley. Nearly 3,000,000 sq. ft. is planned in the City of Industry alone," McWilliams stated.

As for the Inland Empire, McWilliams said 1997 was a banner year with absorption up 40 percent at 16.2 million sq. ft. Among area trends, McWilliams said the build-to-suit market will be slowing as prices inch up one percent per month, stimulating the spec market.

Representing the office market, Tim Macker, president of Westmac, said "1997 was a big rebound year and 1998 will be successful by comparison, notably on the Westside."

"Availability of land is nil, but major redevelopment is emerging. Demand for land and space is overwhelming. Practically every "B" class building changed hands, some two to three times, with REITs doing most of the buying. Accordingly, you will see sale prices in some locales reaching $400 per square foot in 1998," said Macker.

He reported that the overall Westside vacancy is 12 percent, compared to 21-22 percent in downtown L.A.

Bright spots in the Westside office market are Westwood, Culver City and Santa Monica, Macker continued, noting that "cutting edge office building rents are going up 15 percent annually."
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MILLIE AND SEVERSON ENJOYS CLIENT CONFIDENCE FOR OVER HALF A CENTURY

Completing commercial and industrial building projects on schedule and under budget has been a hallmark of Millie and Severson since its inception in 1945.

With a principal activity in general building contracting, Los Alamitos-based Millie and Severson has maintained a diversity of projects, thereby minimizing the cyclical nature of the real estate industry, according to Vice President Robert E. Wissmann, who represents the firm with AIR.

The company's construction experience ranges from health care and institutional facilities, multipurpose business complexes, commercial buildings, retail centers, hotels, and retirement villages, to residential projects.

Wissmann says that in addition to the company's "shell" building construction experience, the past five years have seen the firm complete 1.6 million sq. ft. of office and industrial tenant improvement work.

He reports that since 1980, Millie and Severson has constructed over 52 major new office building projects in Southern California totalling over 3.7 million sq. ft. Also since that time, the company has built over nine million sq. ft. of concrete tilt-up buildings. These include commercial offices, distribution facilities, heavy and light manufacturing structures, multi-tenant business parks, high-tech security buildings, medical facilities, and warehouses.

Current projects include a 223,672 sq. ft. multi-tenant business park for Pacific Gulf Properties in the Pacific Commercentre, a 93,800 sq. ft. freight forwarding facility for Imperial/Hornet LLC in El Segundo, a 154,287 sq. ft. business park for Fu-Lyons Associates in Downey, a 118,320 sq. ft. built-to-suit for Airtech in Huntington Beach, and two industrial buildings totalling 174,839 sq. ft. for Watson Land Company in Rancho Dominguez.