SOURCE: Los Angeles County Economic Development Corporation (LAEDC)

March 07, 2006 06:00 ET

Construction Costs Curtail Major Expansions Across Los Angeles Five-County Area LAEDC Study Says

LOS ANGELES, CA -- (MARKET WIRE) -- March 7, 2006 -- Declining office and industrial vacancy rates and rising rents should continue to boost development of new office and industrial buildings, but rising land and construction costs could short-circuit many projects in Southern California according to a new study release today, (Tuesday, March 7, 2006) by the Los Angeles County Economic Development Corporation (LAEDC). The Study is posted at www.laedc.org/reports. The 2006 study shows the number of major expansions was down about one fourth last year, but dollar investments were up.

"Southern California has the tightest industrial market in the U.S., and a rapidly tightening office market," explained Chief Economist Jack Kyser, senior vice president, LAEDC. "A growing challenge and concern for the area is that there is not enough land available for new commercial development to accommodate business growth. Exacerbating the situation has been the run-up in construction material costs. Furthermore, due to low interest rates, many businesses moved from leasing space to purchasing."

The LAEDC regularly tracks major business expansion activity in the Los Angeles five-county region. The LAEDC defines a "major business expansion" as a lease or building permit (building space not equipment) of at least $1 million or of 20,000 sq. ft. or more. A useful rule of thumb is that for every major expansion, there are three smaller ones not tracked in the LAEDC's survey. The survey is a handy indicator of who is doing what and where.

The study found that there were a total of 252 major expansions in the five-county region recorded by the LAEDC during 2005. That was down by 27.5 percent or by 96 projects from 2004. "This is not necessarily bad news but an indication that business caution and higher costs have put the breaks on," Kyser said.

Office vacancy rates have been declining across the Los Angeles five-county region since the second quarter of 2004 according to the study. "This was the period when businesses started hiring more employees to accommodate their growth as well as to improve productivity," explained Kyser. "They expanded and/or relocated their offices and many were pushed by rising lease rates."

[Editors: Contact George McQuade, MAYO Communications, 818-340-5300 for interviews and for the LAEDC study, go to http://www.mayocommunications.com/home.htm and click on What's New.]

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