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Los Angeles Industrial Market Report

2nd Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

INDUSTRIAL real estate is one of the most sought-after property categories in the Los Angeles market. Rents for warehouse and distribution space are expected to rise 30 percent in some important US industrial supply-chain cities over the next five years, as demand continues to exceed supply in the industry. Rental rates concluded the quarter at a continual all-time high of $1.59/SF on a triple net basis, a 42.0% increase year-over-year trend.

THE OUTLOOK for 2022 is quite positive, indicating the confluence of multiple drivers that have significantly increased demand for industrial real estate since the outbreak began and will continue to do so in the foreseeable future. Truck terminals are in great demand, therefore competition for industrial land has increased. Due to the high demand for any accessible industrial land, land leasing rates have risen beyond $1.13 SF triple net.

DIRECT VACANCY remains historically low at 1.5%, illustrating the high demand for quality industrial space throughout the region. Although net absorption was negative during the quarter, this was a product of older antiquated buildings being demolished in favor of new construction projects, rather than a market correction.

OVER 721K SF WAS DELIVERED in 2Q 2022, with 4.3M SF now under development. Due to a scarcity of construction property, developers have remained active in pursuing rehabilitation and repositioning projects, pushing land values to an average of $252.44/SF.

ECONOMIC REVIEW

THE LOS ANGELES COUNTY unemployment rate increased by 20 BPS from the month prior to 4.5% in May 2022. Job gains increased by 14,000 over the month to 5,058,000 in May 2022.

THE PORT PROCESSED 967,900 TEU’s in the month of May, a 4.4% decrease compared to the same time last year.

NEAR TERM OUTLOOK

DEMAND FOR INDUSTRIAL SPACE will remain extremely competitive, with landlords attempting to profit on price. Because there are few options in the city, space that is typically rented a year in advance may see an increase in renewals. Some properties have been demolished and rebuilt as modern logistics facilities, while others, particularly in West Los Angeles, have been transformed into creative mix-use product. Because of high land costs and limited development sites, most inventory in Los Angeles is older and smaller than in many other industrial markets across the country.

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