Los Angeles Industrial Market Reaches New Heights
By Elizabeth Capati, Associate, Colliers Greater Los Angeles
A new trend has emerged across Greater Los Angeles’ industrial market that has developers waiting for under-construction projects to capture the highest possible rent near the final development stages or closer to their target completion dates. With rents increasing at historical rates, a certain hesitancy exists, and companies are less likely to sign a lease during earlier development stages. In some instances, landlords ask listing agents to place certain buildings or projects on the market months in advance to build momentum and pique interest. Still, those landlords elect not to review offers until a month or two before their target completion date.
Los Angeles is a land-constrained market where all new developments come from knocking down older, functionally obsolete buildings or conversions from other property types. The more contemporary, state-of-the-art facilities with the tallest warehouses and functional loading set the high water mark for new lease rates. With a 0.6 percent vacancy across an 862-million-square-foot market, tenants will continue to aggressively bid for any new big box space that comes to market. The South Bay and San Gabriel Valley markets are the only areas with more than 1 million square feet of development activity.
Activity and Incentives
Ecommerce continues to be the dominant activity driver across the Greater Los Angeles region. Amazon, third-party logistics providers and other high-caliber online retailers have significantly increased their Los Angeles footprints, heavily impacted by the onset of the pandemic. Ecommerce is taking a solid hold of the industrial space in our Los Angeles markets. This is particularly true for companies with production and distribution lines that benefit from proximity to the port. A noticeable shift has occurred with manufacturing-type businesses choosing to move farther inland. At the same time, ecommerce giants will likely continue growing their footprint in the South Bay.
The sales and capital market landscape for industrial property is arguably the most competitive it has ever been. Industrial real estate has become the favored property type by a long shot due to the rapid rise in rental rates, historically low vacancy and no signs of demand slowing down. Sale prices in the industrial market are breaking records left and right, and the numbers will continue on an upward trajectory. Regardless of industry or service specialty, everyone wants a piece of the industrial pie.
LA’s current industrial market undoubtedly favors landlords. When a Class A space hits the market, tenants receive aggressive offers in the multiples. This allows them to be strategic in their tenant selections, often holding out for a tenant with the best credit. Los Angeles vacancy currently sits at 0.6 percent, with an average asking rent north of $1.25 (NNN) per square, foot per month.