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AMS Fulfillment Shaves Vacancy Rate with Leases

The Santa Clarita Valley industrial real estate market had a savior last year: one that nearly single-handedly trimmed the vacancy rate and drove up prices as it went on a real estate tear amid sharp revenue growth. Valencia-based AMS Fulfillment leased nearly 500,000 square feet of industrial space in eight buildings in 2011, according to Doug Sonderegger, an executive vice president with CBRE Group Inc., who represented AMS. The company only gave up a 105,000-square-foot warehouse. In October, AMS signed two-year leases on two warehouses in Valencia, totaling about 80,000 square feet. And in July the firm moved to its new headquarters — a sprawling, white 120,000 square-foot warehouse located in a hillside business park, overlooking Six Flags Magic Mountain. “In the Valencia area, over the last six months, the vacancy (rate) has gone from 7.5 percent down to 5 percent” in large part due to the AMS activity, said NAI Capital Inc. Senior Vice President Chris Jackson, who was not involved in the deals. With so much space leased by AMS, landlords in the area could well charge six cents more per month than if the space was still vacant, he said. Other brokers in the area said AMS’s transactions have significantly helped the market, although cautioned, given the nature of the fulfillment business, the development is hardly set in stone. AMS has seen business grow through the recession, as large companies have eliminated their own fulfillment departments, turning to third-party vendors that can do the job more efficiently and effectively, the company said. “In a bad economy more companies consider getting out from under fixed expenses,” said AMS CEO Ken Wiseman. “So it’s a good time for outsourcing fulfillment.” For last year, a big part of the growth was larger firms that outgrew their small fulfillment contractors and inked deals with AMS, Wiseman said. AMS expects to post more than $30 million in revenue in 2011, up from $15.6 million a year earlier, Wiseman said. And permanent employees have jumped to 275 from about 100 last year, the company said. AMS declined to reveal specific terms of its recent real estate deals fearing that other businesses could squeeze them out of their short-term agreements. But it said its leases are specifically designed to deal with the ebb and flow of the market. “We have staggered leases that expire at different times,” said AMS President Jay Catlin. “We have short-term, mid-range and long-term commitments. We have to be pretty nimble in how we manage our facilities.” That reality has lessened the optimism about the long-term impact of the leases on the Valencia marketplace. “In two years, potentially all this stuff could come back on the market,” Jackson said. The company said it currently has four buildings totaling about 350,000 square feet that it considers its core properties, which it intends to keep indefinitely. In the future, AMS may move to vacate several of its 11 Valencia buildings and consolidate those operations into a single larger space, Catlin said. “We don’t want to be in a large number of buildings,” he said. Still, there are fewer larger buildings left in the Santa Clarita area after AMS scooped up its properties last year, Jackson said. “Now if you need a 100,000 square feet, there is nothing,” he said. “It’s definitely a good thing for the market; it’s a bad thing if you’re looking for space.” The shortage of quality industrial space in the Valley-area will likely begin to push rents up next year about 5 to 10 percent, beginning to realign “the market in favor of the landlord,” said Nigel Stout, an executive vice president with Jones Lang LaSalle. But don’t count on new speculative construction. For that, developers would have to see rents rise 30 percent to 40 percent, Stout said. Buildings built for companies will be the first spate of new construction to return, he said. Indeed, with AMS projecting growth, Wiseman and Catlin said they might look elsewhere such as Chatsworth, near the ports of Los Angeles and Long Beach, or out in Ontario, a major distribution hub for the ports. Or, because developers are largely shunning speculative development, AMS may choose to build its own building. “If we want to be into 250,000 to 300,000 square feet, we just might have to build it ourselves,” Catlin said.

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