The Los Angeles County industrial market continues to see record low vacancy rates, which are hovering in the 1 percent range with a conservative forecast calling for rents to increase by 7.5 percent in 2019. Ecommerce companies and third-party logistics providers (3PLs) — many of which support ecommerce operations — will continue to be dominant market players, according to NKF’s Los Angeles industrial market report for Q1 2019.
In North Los Angeles, we are seeing multiple submarkets, including those in the San Fernando Valley, Ventura County, Conejo Valley, Kern County, and the Santa Clarita areas, becoming more connected than ever before. These areas and projects are now “connecting the dots” between all the submarkets as the opportunities for industrial space in Los Angeles’ core markets become increasingly more competitive and scarce.
Jeff Abraham, NKF
For example, occupiers that have been in the 130 million-square-foot San Fernando Valley industrial market for decades are now needing more space. However, the opportunities for larger, modern product are just not there. The majority of industrial product is less than 100,000 square feet with 16- to 24-foot clear heights. This can work for users like cosmetics, entertainment and aerospace, but others need more modern features to streamline operations. Many have already relocated, expanded or are seriously considering expanding to other areas that were not even a consideration a decade ago.
The Ventura County cities of Camarillo, Moorpark, Thousand Oaks and Simi Valley are great catcher’s mitts for San Fernando Valley companies seeking brand-new, Class A industrial buildings. By choosing these locations, however, they also reap the benefits of lower taxes and have access to a huge talent pool of employees across the entire North Los Angeles market.
Simi Valley is one of the most desirable submarkets for new industrial space right now. Our NKF team recently signed a lease with a local user for a 56,306-square-foot new development here on behalf of Rexford Industrial. Just south of that site is a 211,715-square-foot building where developer Xebec Development just broke ground. It was formerly the site of a 120,000-square-foot office building. This state-of-the-art facility offers 32-foot clear heights, 27-foot dock high loading doors and 135-foot truck courts — it’s a challenge to find an older facility with those specs just 10 miles east in the San Fernando Valley.
Valencia, off the 5 freeway in the Santa Clarita submarket, is another region growing for industrial. With about 30 million square feet, this newer, master-planned community has caught the attention of industrial users in the eastern part of the San Fernando Valley that are looking for new homes. IAC Valencia is currently under development by International Airport Centers. This nine-building, Class A project has seen great leasing and sales activity, with the recent sale of a 187,540-square-foot building selling for nearly $200 per square foot.
Another prime example of a recent development, leasing and subsequent sale is Conejo Spectrum, a 505,000-square-foot business park in Thousand Oaks built by Sares Regis and completed in mid-2018. Within three months of completion, seven of the nine buildings were leased to a wide variety of users, including ecommerce and biotech firms. We sold the property on behalf of Sares Regis to Rexford Industrial in early 2019 in a landmark deal for more than $106 million and a price per square foot of about $210. It’s challenging for REITs to find mass in our market, so a newly constructed Class A business park is highly sought after. We don’t see any of this slowing over the next several years.
— By Jeff Abraham, senior managing director, Newmark Knight Frank. This article first appeared in the July 2019 issue of Western Real Estate Business magazine.