Across all sectors of commercial real estate, experts say markets remain strong and are poised for another year with low vacancy rates and increasing prices, despite a slow first quarter.



Robert Garey, senior director at Cushman & Wakefield, said the office real estate market was relatively flat during the first quarter of 2017. However, he explained that he thinks the next 12 to 18 months will see trends of increased occupancy, driving up rents as space becomes more limited.

Construction continues on the Long Beach Civic Center development. The $533 million public-private partnership project includes an 11-story, 254,000-square-foot city hall; an 11-story, 237,000-square-foot port building; a 92,500-square-foot main library; a 73,000-square-foot civic plaza with subterranean parking structure; and a renewed Lincoln Park. The city hall, port and library buildings are expected to be completed in mid to late 2019. Additional development is planned for future years, including a possible hotel/residential complex. The project is overseen by Plenary-Edgemoor Civic Partners. (Photograph by the Business Journal’s Larry Duncan)


According to a first quarter report by Cushman & Wakefield released on April 13, Los Angeles County has a historical average of a 19.7% vacancy rate. At the time of the report, Long Beach had a 14.6% overall vacancy rate in the office market, with 9.8% in the suburban market and 16.5% downtown.


“As employment rises it creates the fuel for office demand. There’s a direct correlation,” Garey said. “That’s what’s changing that historical average – employment has been very good, so companies have been adding office space to meet the demand side of it.”


Year-to-date absorption was 100,302 square feet, and nearly 80,000 square feet of office space is currently under construction in the suburban market of Long Beach. Approximately 187,900 square feet of space has been leased citywide so far in 2017.


“Overall, it’s got a bright future,” Garey said. “Things are on a positive trend, and I don’t see it changing in the near term.”


David Smith, senior vice president of CBRE Inc., explained that building renovations in the downtown area, such as The Hubb at 100 W. Broadway, are exciting and attractive to prospective tenants. He said this type of high-quality, creative space is the future of office space downtown but that activity has been slower than people had hoped.


However, Smith said current retail and residential improvements underway downtown will have a very positive impact on the office market in the future.


“Rates overall throughout Long Beach are doing very well,” Smith said. “We’ve seen good escalation in rates as a general rule because it’s still definitely a bargain for the quality of space and the views and everything else.”


Asking rent for Class A buildings in the downtown area is currently $2.83 per square foot, while Class B space is $2.08. However, Smith noted that Class B has a wide range of types, with the newly renovated spaces pushing up on Class A rates. Suburban Class A building asking rent is currently $2.62 per square foot, while Class B is $1.81, because very few have been renovated.


Smith noted that the gap in downtown vacancy rates between Class A and B buildings is also coming closer together due to the renovations of Class B space, which is causing lease rates for Class B space to increase at a faster rate than Class A.


“I would call leasing activity reasonable but not robust yet,” Smith said. “The new developments at Douglas Park are being very well received. For those that are interested in that area, there is some availability, but there aren’t multiple options like there are in other areas.”



According to a first quarter report by Lee & Associates Commercial Real Estate Services, retail space vacancy in Long Beach and West Orange County rose slightly to 3.36% overall.

Suburban Long Beach currently has a 3.5% vacancy, while downtown and coastal areas have a 2.3% vacancy. Additionally, the report shows negative net absorption in Long Beach citywide and average rents that decreased slightly to $2.07 per square foot.

Aman Lu and Joyce Chen celebrated the opening of their Chinese restaurant King Buffet on April 26. The married couple’s 11,700-square-foot space at 520 Pine Ave. is part of the former City Place shopping center, now marketed as “The Streets.” (Photograph by the Business Journal’s Larry Duncan)


“I would say, if the first quarter was a little more flat, the second quarter is a little more bullish, as far as people out looking to open up new stores and open up new restaurants,” Doug Shea, president of INCO Commercial, said. “I’m getting a lot of calls on my retail products that are in good areas and some that are in just medium areas.”


Shea and Joe Linkogle, director of Marcus & Millichap’s National Retail Group, agree that apprehension by businesses has eased due to the outcome of the presidential elections, which will lead to more activity in the retail real estate market.


Linkogle said that despite an uptick in interest rates by the Federal Reserve, buying and leasing is still very strong, with a very active and enthusiastic market.


“I think that people feel that the Trump administration is going to promote legislation that is going to be favorable toward business. That’s the macro feeling,” Linkogle said. “So if there was any apprehension prior to the election, that went away.”


The old adage “location, location, location” was reaffirmed by Linkogle, who noted the high rental rates of areas such as Belmont Shore and how vacancy rates in desirable areas will be much lower than in less desirable areas. Even on the same block, Linkogle said rents are typically higher for a corner than a mid-block space.

Inside King Buffet. (Photograph by the Business Journal’s Larry Duncan)


The latest change to the Long Beach retail market is the reintroduction of medical marijuana dispensaries throughout the city. Up to 32 dispensaries are going to be allowed to operate in Long Beach, and the application process for non-priority dispensaries ended last month.

One dispensary has already been approved for a location on 2nd Street in Belmont Shore, which Shea said will be terrible for other retail along the block.


“We generally do not like dealing with that at all,” Shea said. “There’s too much uncertainty. There’s too much non-professionalism in that industry. They’re really wasting a lot of our time. I would prefer they never call my office.”



The dynamics of the fourth quarter of 2016 have carried over to the first quarter of 2017, according to Lance Ryan, senior vice president of marketing and leasing for Watson Land Company. Record low vacancies with high demand throughout Long Beach and the South Bay area are putting upward pressure on rental rates.


In addition to low vacancy and high rates, Ryan noted that many optimistic companies with expansion plans are having a difficult time finding space because there is also a lack of land to construct new industrial space.

As part of the Long Beach Civic Center development project, construction crews continue work on renewing Lincoln Park along Pacific Avenue between Broadway and Ocean Boulevard. A new main library is planned for the northern portion of the park, adjacent to Broadway. At upper right is Landmark Square office tower, which opened in 1992. (Photograph by the Business Journal’s Larry Duncan)


“We’ve seen a little bit more of existing customers staying in place and renewing leases that they might not have otherwise, because a building is too large or too small or not quite the right fit,” Ryan said. “But because there’s such a lack of alternatives, they end up staying in place.”


Since the middle of last year, rental rates have increased almost 10% in every size range, according to Ryan. He explained that there is always a spread between Class A space and Class B space due to functionality, location and the age of the building but that rates are even outperforming pre-recession levels.


“They’re moving up, but they’re moving up faster than they have in the past,” Ryan said. “It seems to, rather than tapered off, have accelerated up another level. These are rates that haven’t been achieved before in this market.


The Long Beach industrial real estate market currently has a vacancy rate just above 1% with rental rates around $0.82 per square foot for Class A building space. At the same time, average sales price has decreased to $121.62 per square foot.


The first quarter saw 182,677 square feet of absorption with nearly 1.7 million square feet of space under construction. Additionally, there was $76.88 million in sales transactions.

“The strong momentum that we had coming out of 2016 has carried over to 2017,” Brandon Carrillo, principal at Lee & Associates, said. “With that, we are seeing a lot of signals showing us that 2017 should be another standout year for commercial real estate.”

United Pacific President Joe Juliano said operations would begin at the company’s new headquarters on May 15. The 41,000-square-foot building is located on the southeast corner of Cover Street and Worsham Avenue in Douglas Park. (Photograph by the Business Journal’s Larry Duncan)


Carrillo noted variables such as the Trump administration’s take on trade, which could potentially have a negative impact on the market. However, he said that the most recent rhetoric has backed off of certain positions, such as a trade war with China, which is good news for the industrial market.


Industrial space on the Westside of Long Beach has experienced dramatic impacts to prices due to the incoming medical marijuana businesses, according to Carrillo. He said that with prices almost doubling in the area, it’s like long-term property owners in the area have won the lottery.


“We have seen a lot of property owners testing the market and being pleasantly surprised,” Carrillo said. “It’s something similar to what our Lee & Associates office saw in Denver, Colorado, a few years ago when they passed the whole recreational/medical marijuana use approval.”


Carrillo explained that there are winners and losers in this situation, with the losers being traditional industrial business users who are getting priced out of the area. He said the medical marijuana industry can afford to buy and lease space for much more than a typical business, which is unfortunate for traditional users, but he said he would be doing his clients a disservice if he were not getting top dollar for their space.


Between medical marijuana and watching how the Trump presidency plays out, Carrillo said there are certain aspects to keep an eye on, but he thinks the market will remain strong with low vacancy and high demand.


“Every company I’ve spoken with, there’s a lot of optimism out there, which is great,” Carrillo said. “I think the second quarter is going to be another great quarter for industrial real estate.”


Douglas Park

The former McDonnell Douglas/Boeing property along Lakewood Boulevard continues to evolve with industrial, office and retail space, with several projects nearing completion and new tenants being announced.

Construction crews tilt a section of wall for the third and final building of the Pacific Pointe East project at Douglas Park on May 4. Torrance-based Simplehuman, a privately owned designer and manufacturer of kitchen, bath and beauty tools, has leased the 220,000-square-foot building, which is scheduled for completion on September 1. (Photograph by the Business Journal’s Larry Duncan)


On the southwest corner of Lakewood Boulevard and Conant Street, Pacific Pointe East has taken shape with two of its buildings scheduled for completion on June 1. Building 10 is 110,000 square feet and leased by Human Touch, a therapeutic furniture store relocating from its current location at 3030 Walnut Ave. in Long Beach. Building 9, at 140,000 square feet, is also scheduled for a June 1 completion and is still available.


Pacific Pointe East’s Building 11 is scheduled for completion on September 1. Torrance-based Simplehuman, a privately owned designer and manufacturer of kitchen, bath and beauty tools, signed a lease for the 220,000-square-foot space adjacent to Skylinks golf course.


United Pacific employees are moving into the company’s new headquarters on the southeast corner of Cover Street and Worsham Avenue beginning May 15, according to President and CEO Joe Juliano. He said the finishing touches, including, cabinetry, flooring, exterior concrete and landscaping, will be completed on May 12. The 41,000-square-foot space will serve as the company’s new headquarters, which is currently located in Gardena.

The 32,027-square-foot office building by 2H Construction located at 3849 McGowen St. in Douglas Park has been leased to Chestnut Ridge, NY-based MC2, a company that designs, builds and manages integrated marketing programs for events, exhibits and brand environments. Completion of the project is scheduled for November 1. (Photograph by the Business Journal’s Larry Duncan)


According to Stephanie Zachan, marketing manager for Nexus Development Corporation, the company’s Hampton Inn and Homewood Suites dual hotel project recently had the roof completed and has started exterior wall finishes and drywall finish in guestrooms. Workers will begin focusing on public space build-out in mid-May and anticipate having four model rooms completed by the end of the month. Zachan said the hotel opening is estimated for mid-September.


Long Beach Exchange – the largest Douglas Park project, which will feature 266,000 square feet of retail and restaurant space on about 27 acres of land – is progressing very smoothly, with most building slabs completed or underway, according to Scott Burnham, president of Orange County-based Burnham USA, the developer of the project.

The Hampton Inn and Homewood Suites dual hotel recently had the roof completed and exterior wall finishes and guestroom drywalling has begun. Developers anticipate to have four model rooms completed by the end of the month and for the hotel to open mid-September. (Photograph by the Business Journal’s Larry Duncan)


Burnham said major anchor tenants include Whole Foods 365, Nordstrom Rack (relocating from the Lakewood Center), T.J. Maxx, PetSmart and Lowe’s Orchard Supply Hardware, as well as other major names that have committed to the project but are not ready to be announced. The Long Beach Exchange is being built in a single phase and is scheduled for completion in March or April of 2018.


The 32,027-square-foot office building by 2H Construction located at 3849 McGowen St. has most of its underground work completed, as well as foundation footings. MC2, a company based in Chestnut Ridge, New York, that designs, builds and manages integrated marketing programs for events, exhibits and brand environments, has signed a lease set to begin when construction is completed, which is estimated for November 1. According to a company spokesperson, the location is the company’s 16th location nationwide and will be home to at least 20 employees.

Brandon Richardson is a reporter and photojournalist for the Long Beach Post and Long Beach Business Journal.