Chris Bertz, Charles Dunn Company
The industrial market in Los Angeles County is extremely tight and shows no signs of letting up as the trend for conversion of industrial property to creative office space by tech and media industries is very prevalent. Many industrial property owners either sell their assets and realize major equity gains with the new buyer planning a conversion, or choose to convert it to creative office themselves, garnering two to four times the rental rate for creative space.
The vacancy rate of 3.2 percent in the first quarter of 2015 was parallel to that of the last quarter of 2014. To give some perspective, the downward trend of industrial vacancy has continued since the second quarter of 2013 when vacancy posted at a 5 percent rate. Additionally, the majority of larger industrial development in the region is build-to-suit product, which has virtually no impact on vacancy.
The Downtown Los Angeles industrial market continues this trend of industrial property conversion to creative office. The Arts District is ground zero for this. While the rejuvenation and gentrification of Downtown is a welcome sight, the industrial users are now having to relocate, seeking other spaces throughout the LA basin.
Many of these users are eyeing space in the Tri-Cities areas of Burbank, Glendale and Pasadena, as well as throughout the San Fernando Valley. The San Fernando Valley has seen slight rental increases over the past two quarters. I believe that trend will continue as the industrial market pushes outward. With little new construction in this submarket – just 118,164 square feet was under construction in the first quarter this year – rents, which average $0.88 in San Fernando Valley East and $0.77 in San Fernando Valley West, will inevitably increase. The market with the lowest vacancy is South Bay, at 2.8 percent. With just 3,525 square feet under construction, this area will be competitive as users vie for quality space. There are also many industrial owner-users seeking to acquire space, which has been very competitive. Many properties that hit the market are seeing multiple offers and are going into escrow soon after the first week of marketing.
By Chris Bertz, Associate, Charles Dunn Company. This article originally appeared in the June 2015 issue of Western Real Estate Business magazine.