Recessionary Reaction (JPM)

Sustainability, technology and healthcare offer industry opportunities in California

by Darnell Little

The following is an excerpt from the May/Jun 2009 issue (Volume 74, Number 3) of JPM�, Journal of Property Management.

Many financial experts have pointed to the Golden State as the epicenter of the national foreclosure crisis, and the numbers seem to back them up. For January 2009, 15 of the top 30 metropolitan areas ranked by foreclosure rates were from California, according to data from Realty Trac.�

And the news only gets worse from there. Unemployment in California topped 9 percent by the end of 2008, riding a net loss of nearly a quarter million jobs. Meanwhile, home prices are plummeting across the state. Everywhere from Santa Clara to Los Angeles County has seen median home prices fall more than 30 percent.�

Rising unemployment is fueling business contraction, and rising vacancies are applying strong downward pressure on rents. According to CB Richard Ellis, AMO�, the Los Angeles office market has transitioned from a landlord market to a tenant market thanks to soaring vacancy rates, low transaction volumes, falling rents and rising tenant concessions.�

Things are no better in the retail market. California retail is reeling from the national retail downturn. Consumer spending is tightening, and confidence from owners and developers continues to slip as the list of retail bankruptcies continues to grow.�

�Retail and office are the worst two markets now,� said Nancy Sidhu, chief economist for the Los Angeles Economic Development Corporation. �A number of retailers lost financing and went bankrupt. The impact from the credit crunch is we have a lot of empty stores.��

Port Authority

But amidst all of the gloom and doom, opportunities still exist for the enterprising property manager to find pockets of prosperity. While the residential, office and retail markets are indeed feeling real pain, the industrial market is holding its own in some niche areas and offers opportunities for management professionals.�

Many people don�t think of California as a home for heavy-duty manufacturing, but in 2008, California employed more than 1.4 million people in the manufacturing industry, the most in the United States.�

And southern California is home to the nation�s largest container-port complex�Los Angeles-Long Beach�and is the largest market for warehouse and distribution centers.�

The national recession has no doubt still impacted the California industrial market to some degree. Port activity in Los Angeles and Long Beach has decreased and unemployment in the sector has increased. But while industrial vacancy rates have risen, it is still less than 3 percent in the Los Angeles area. Demand for space near the ports remains high as developers still value the savings involved in avoiding highway traffic between the ports and the distribution centers.�

�We have real industry, as well as international trade distribution space,� Sidhu said. �The market has a place for property managers who understand industrial [properties], primarily stemming from port situations.�

The full article is available as an online exclusive in the May/Jun 2009�JPM� issue.

IREM Members have free access to the JPM� online archives and the �Online Exclusives,� articles that are only available on the IREM Web site. Non-members can subscribe to JPM� at www.irem.org/jpm.