Brokers faced with tight market, but vacancy is increasing.

by admin

At nearly 1 billion square feet, the Los Angeles industrial market is one of the largest in the nation, and despite increasing vacancy in the past year, it remains one of the tightest. The Bureau of Labor Statistics has estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Industrial-oriented jobs have been among the hardest hit during the past 12 months, including losses in trade, transportation and utilities (39,900 jobs); manufacturing (36,200 jobs); and construction (18,000 jobs). Slowing trade and reduced consumer spending is largely responsible for lower industrial demand in 2009.

At the Port of Los Angeles, year-to-date TEU volume through August was 18.3 percent lower than the same period in 2008; at the Port of Long Beach, the TEU volume has declined 21.7 percent from 2008 levels. Container activity at the Los Angeles/Long Beach port complex peaked in 2006 when 15.76 million TEUs were handled. The forecast for 2009 is for 12.2 million TEUs, a decline of 22.6 percent.

At mid-year 2009, total industrial vacancy in the area was 4.6 percent, up from 3.5 percent at the end of 2008. While vacancy remains low, availability has surpassed 9 percent, the highest rate in more than 5 years. This signals that vacancy will continue to rise in the near-term.

With falling demand, the market has experienced negative net absorption totaling 12.1 million square feet year-to-date. Net absorption is forecast to remain negative though the end of 2009. Fortunately, new construction has been severely limited due to lack of land and the high cost for any available land; this will keep vacancy rates at healthy levels through the current downturn, yet the market has still shifted in favor of tenants. Tenants are being cautious, and there is no sense of urgency; they anticipate rents to fall further. The current average asking rate for direct warehouse space is $0.61 per square foot NNN, down from $0.66 a year ago.

Forecasts indicate that the recession and its effect on international trade as well as manufacturing are expected to level out in late 2009, with modest economic growth returning in 2010. Vacancy is projected to increase moderately and rents to decline though 2010. Since the Los Angeles industrial market is coming off of extremely tight conditions, this correction will bring welcome relief to companies in need of industrial space as the economy improves in the coming year.

— Michael Gold is a senior research analyst at UGL Equis in Los Angeles.

You may also like