MARKET DRIVERS
THE PMA ILWU AGREEMENT restores confidence that cargo will again be efficiently processed through the Ports of Long Beach and Los Angeles without the threat of strike or longshoremen disruptions. While the cargo that was rerouted to the East Coast will start to appear on our docks, it will take some time, given the natural lag of goods being imported from Asia. Further, there is no expectation for a resurgence in Chinese imports entering into the County as China’s attempts to jumpstart its economy have largely stalled.
THE LEASING MARKET for new transactions reflects the headwinds mentioned above as new requirements in the market to relocate or expand remain sluggish. There is a definite softening in Class A and Class B demand, and vacancy has again clicked upwards this quarter to 3.3%. Asking rental rates have remained steady throughout the year, but primarily due to a lack of new lease comps in the market. The lease renewal market remains solid and steady, and rates generally hold as companies prefer the status quo.
IN THE 2ND QUARTER OF 2023 there was one sale of a 101,175 SF Class B minus building on 187,308 SF lot at 208th Street in Carson. Black Equities sold the building off-market to Everwest Real Estate Investors. The sale price was $32,000,000, equating to $316/SF on the building and $171/SF on the land. Much of the limited sale activity is on the smaller owner-occupier side. Generally speaking, Buyers are repricing their underwriting to mid-6, cap range and not providing for much, if any, rent growth in the near term.
NEAR TERM OUTLOOK
WE SHOULD START TO SEE improvement in the Port numbers later this year as Long Beach and Los Angeles stabilize and attract more cargo. Based on absorption and the amount of inventory on the market, we predict new lease transactions will be at least 10% off peak in Class A and Class B. The sale market continues to be negatively impacted by the debt markets and the lack of leasing demand. Only time will tell where interest rates/cap rates will level off, but at least another of couple of hikes will drive actual cap rates into the high sixes.
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