With the nation's tightest industrial real estate market, Southern California faces a looming problem of meager space for expanding factories and warehouses.
That was one of the conclusions of a report released Tuesday by the Los Angeles County Economic Development Corp.
Los Angeles County and the four surrounding counties saw 252 major business expansions last year, down 27.5 percent compared to a year earlier, the study said.
The study defines a major expansion as a lease or building permit of at least $1 million or 20,000 square feet.
Lack of undeveloped land represents a prime cause of this drop. And the rise in the price of construction materials only exacerbates the situation.
"There's a shortage of large chunks of developable land. And when the land goes up for sale, you see it used for other things like mixed use or retail," said Jack Kyser, chief economist at the LAEDC.
With a 2 percent industrial vacancy rate in the fourth quarter, Los Angeles County had the tightest market in the five-county region that includes Orange, Riverside, San Bernardino and Ventura counties.
When there is scarce space available for factories or warehouses to expand, fewer manufacturing jobs can be created. These types of jobs often pay well and offer benefits, representing an opportunity for people who don't attend college to climb into the middle class, Kyser said. By contrast, retail jobs tend to pay much less and offer fewer benefits.
"It would hurt not just overall job creation, but the quality of your job creation," Kyser said of the shortage of industrial space.
This employment dynamic especially would hurt the region's growing Latino population, which often depends on such blue collar jobs for economic advancement, Kyser said.
The South Bay and LAX area has an industrial vacancy rate of 2 percent to 3 percent, said Harry Okula, vice president and branch manager for the South Bay office of DAUM, a commercial real estate services firm.
The South Bay industrial vacancy rate is "as low as I can remember, and I've been in the business since 1971," said Dave Drummond, senior vice president at Colliers International in the South Bay and president of the Society of Industrial and Office Realtors.
That has led to higher land prices and rents, making business expansions -- when they do occur -- even more expensive. The area's dearth of industrial space means companies must wait longer to find space to expand, Okula said.
"They become more patient than they ever thought they could," Okula said.
If their patience runs out, companies then look to lease space rather than buy since leased space is easier to find, Okula said.
Companies' last option is to look for space farther from their ideal location.
Even office space has become tighter in Southern California, although not as severely as the industrial market, Kyser's report said.
Again, the issue returns to available land.
"You' can't make more land," Kyser said. "There are only a few large blocks of office space in the county. If those get snapped up, all of a sudden you get a very tight market."
Kyser said that local governments must deal with the land shortage by considering industrial projects for available lots instead of immediately jumping to retail.
Okula said that the future of new industrial construction probably lies in the demolition of older building to erect new structures.
"That's being driven by the fact that there's a lack of modern product and there's a lack of land to buy," Okula said