Rents Rise On Strong Market Fundamentals
The Los Angeles Basin industrial market is the largest market in the United States, totaling over 1.5 billion SF. It also has some of the highest asking rental rates and as well as one of the lowest vacancy rates of any market in the US. Major industrial drivers for the region continue to be imports at the twin ports of Los Angeles / Long Beach, which handle roughly 40% of all imports into the country. In addition, the region is the largest manufacturing center in the United States, with more manufacturing jobs than the entire state of Illinois.
The Greater Los Angeles Basin industrial market delivered 3,935,100 SF of new industrial space while 18,781,100 SF of space remains under construction.
The majority of the space currently under construction (13,640,300 SF) is in the Inland Empire. The barriers to development are much lower in this outlying area, however the infill markets of Los Angeles and Orange County are starting to see renewed interest in speculative development.
Asking rental rates continue to increase, ending the quarter at $0.64 PSF NNN. This is up 3.2% PSF over the previous quarter and up 10.9% over the previous year. Rental rate growth is expected to continue as quality industrial space remains scarce. Despite the current construction boom taking place, actual construction completions are only on par with those of previous years.
The vacancy rate declined 20 basis points to 2.4%. The Los Angeles Basin industrial market remains one of the tightest industrial markets in the United States.
Food manufacturing and apparel production continue to dominate Vernon and Commerce submarkets. Tenants in these industries continue to expand and the 30,000 SF of space that was completed this quarter was for a build to suit project. Tight market conditions in South Bay and a lack of large modern space continue to be deterrents that drive tenants to neighboring markets. This may change in future quarters once 2,342,500 SF of modern space is completed. For industrial users looking to find the ideal space in San Fernando Valley and Ventura County, they will likely have to expand their industrial footprint by taking additional space in soon to be constructed speculative buildings or in build to suit projects as quality space remains hard to find.
San Gabriel Valley is on the tail end of a building boom with 323,000 SF completed this quarter and 813,200 SF remains under development. There is a lack of space for businesses to expand in the Mid Counties and future quarters may see a slight uptick in vacancy as new construction is brought to market. Orange County industrial product is expected to continue to deplete due to many properties being sold as land for multi-family redevelopment or converted to creative office space. New speculative construction activity remains on the minds of Inland Empire developers. In the past 12 months, there has been a total of 24.5 million SF of new supply added to the base.