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International trade is a driving force behind one of the most vibrant industrial markets in the nation. There are more than 1.7 billion square feet of industrial space in Los Angeles County, Orange County and the Inland Empire, with 18.2 million square feet of additional space under construction at the end of the third quarter. The South Bay and Central Los Angeles markets are leading the way in new development in Los Angeles County. The LA Basin’s occupancy gains of 12.7 million square feet during the first nine months of the year dropped its overall vacancy rate to 4.9 percent, from 5 percent last quarter and 5.3 percent a year ago.
As the logistics hub of Southern California and the big-box capital of the U.S., international trade is especially critical to the Inland Empire’s industrial market. As a result of increased demand for modern warehouse facilities, warehouse construction in the Inland Empire more than doubled from a year ago to 16.4 million square feet. It was the most active in the nation. Increased demand for industrial space in the Inland Empire lowered the overall vacancy rate to 6.2 percent in the third quarter. This was 60 basis points lower than the previous quarter and the lowest overall vacancy rate since the first quarter of 2008.
Vacancy rates for industrial space in Los Angeles and Orange counties are the lowest in the nation at 4.5 percent and 4.4 percent, respectively. Leasing volume in Greater Los Angeles has generally been stable and is only down 3.3 percent from last year. It totals 28.1 million square feet year-to-date. Orange County continued to make impressive strides with 1.8 million square feet of occupancy gains through the third quarter. Orange County’s overall vacancy rate is down 80 basis points from a year ago, while leasing activity remained healthy and is up 4.6 percent from last year. Even with considerable improvement in demand since 2010, there hasn’t been any significant rental growth. The LA basin’s direct asking rate grew 5.8 percent from last year, but remained down 15 percent from its peak in the first quarter of 2008. More pronounced rent growth is evident among Class A big-box space, especially in Los Angeles and Orange counties where there is a limited amount of Class A product.
Imports at the combined local ports have increased year-to-date (through August) by 3.2 percent and are slowly moving toward the peak levels of 2006 and 2007. Total trade volume at the combined ports is projected to reach 14.4 million 20-foot equivalent units (TEUs) in 2013, a gain of 2.2 percent. The increase in activity, along with substantial growth in e-commerce, will continue to positively impact the region’s industrial market.
— Tina Arambulo, director of research, Cushman & Wakefield in Torrance, Calif.