Market Tightens: Declining Vacancy & Rising Rents


South Bay remains the premier market for distribution companies and sea and air cargo centered industrial users. Tight market conditions and a lack of large modern space continue to be deterrents that drive tenants to neighboring markets. This may change in future quarters as 2,342,500 SF of modern industrial space is brought to the market within the next 18 months.

Key Takeaways:

  • The vacancy rate in the South Bay declined 10 basis points over the quarter to end at 1.1%.

  • Asking rental rates increased to $0.74 PSF NNN. Rents have steadily increased over the last five years since bottoming out at $0.52 PSF NNN in 2011 and have surpassed their previous cycle peak of $0.68 PSF NNN reached in 2008.

  • Sales and leasing activity totaled 2,251,800 SF, broken out into 8 sales (299,000 SF) and 52 leases (1,952,800 SF).

  • Net absorption totaled 201,400 SF for the quarter and 1,009,400 SF year to date.

  • There is 2,342,500 SF of space currently under construction which will have minimal impact on the vacancy rate in future quarters.

Outlook:

Tight market conditions are expected to persist in the South Bay industrial marketplace. The surge in rents is prompting many users to consider buying their properties, however the available inventory is insufficient to meet demand. Land is incredibly scarce and many industrial users are having to get creative or face paying a premium to secure land for truck, car or trailer storage.

 

This quarter saw the seventh largest shipping company, Hanjin Shipping Co. declare bankruptcy. This lead to a number of large cargo ships stranded outside of the ports of Los Angeles / Long Beach and as many as 15,000 cargo containers were left in limbo. Many local companies were left scrambling for short term storage space to deal with this disruption. Longer term, Hanjins assets will likely be sold to rival Hyundai Merchant Marine or another carrier, with minimal lasting impacts on cargo flow in Southern California.