TRC: Low LA Region Industrial Vacancies, Rising Lease Rates Expected Catalysts for Continued Strong Demand at TRCC
By M. Marin
NYSE:TRC
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Need For Regional Warehouse/ Industrial Space Appears to be Growing
… making TRCC likely an important distribution point for north / south bound commercial traffic…
As Tejon Ranch Company (NYSE:TRC) moves forward on its development plans, the company concurrently continues to generate revenue from the income producing units in its operations. Recent activity underscore the value of Tejon Ranch’s underlying land assets for a broad range of activities, in our view.
For example, the Tejon Ranch Commerce Center (TRCC) continues to see strong lease activity on both existing area and space planned for development. The company believes this reflects the attractive location of the facility, given its close proximity to nearby urban centers and to roadways. The TRCC is located approximately 60 miles north of Los Angeles and 25 miles south of Bakersfield, California. Reflecting proximity to these major cities and to nearby highways – Interstate 5, for instance – it takes about 75 minutes to travel from the TRCC to Los Angeles’ Union Station. It is roughly an hour by car from Santa Clarita.
Most of the ranch is bordered by Highway 138 on the south, Interstate 5 and Highway 99 on the west, and Highway 223 on the north. I5 is the major (and in places the only) conduit from the Los Angeles basin north and onto the Central Valley. Access to these roadways and location near major cities make TRCC well-positioned to be an important distribution point for commercial traffic for both south bound and north bound traffic, in our opinion.
…as illustrated by strong pre-lease activity
A Los Angeles-based company recently pre-leased space at TRCC, and MRC-5, the company’s newest industrial building, is also pre-leased. Construction of MRC-5 is on-schedule for planned completion by 1Q24, according to the company. TRC, along with JV partner Majestic Realty, recently secured a lease of the full facility while the site is still in pre-construction stages. The industrial building is planned to be a 446,000-square-foot industrial distribution facility. The facility is planned as a Class A, single load industrial building featuring a 36-foot clear height, seven-inch floor slab and an ESFR sprinkler system. The company believes securing the lease as early in the process as it has underscores the attractive location of the TRCC and the dearth of industrial / warehouse space located proximate to nearby cities.
Reflecting the industrial vacancy rate as low as 0.5% in the LA region, according to commercial real estate services firm CBRE, rising lease rates for warehouse space puts warehouse lease rates in LA county among the highest among metropolitan areas in North America. Land that is already zoned for industrial use can be redeveloped into warehouses once existing leases expire more easily than trying to convert retail space to industrial warehouses because the latter is likely to face challenges from municipalities.
Thus, TRC’s leasing the building even before construction has begun reflects the strength of market demand, we believe, and the strategic location and building amenities at the TRCC, including access to a solid labor pool, according to management. Construction of a new building that Sunrise Brands will occupy is expected to be completed in 1Q24. Once Sunrise Brands vacates its temporary space, TRC has another tenant waiting to move in.
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