Vacancy Rises On Vacant Construction Completions
The Central Los Angeles industrial market is the oldest market in the Greater Los Angeles region with a larger proportion of functionally obsolete and older buildings. Many of these lower clear buildings are located in the Central Los Angeles submarket, near the downtown Los Angeles. Much of this space has been converted to residential, retail or office product. Industrial demand is heavily concentrated in the Vernon and Commerce submarkets with food production and apparel manufacturing remaining the top industries.
The overall vacancy rate recorded 1.3%, an increase of 10 basis points from the previous quarter. This was due to vacant construction completions and not a decrease in industrial demand.
Asking rental rates held steady at $0.65 PSF NNN. Asking rents are at their highest recorded point. Much of the gain in asking rents has been seen in the infill Central Los Angeles submarket.
Sales and leasing activity totaled 1,803,200 SF, broken out into 7 sales (148,700 SF) and 50 leases (1,654,500 SF).
Net absorption totaled 63,000 SF for the quarter. Lack of available space is limiting net absorption.
Only 554,500 SF of space remains under construction, a very low amount for a 251.8 million SF market.
Tight market conditions are expected to persist in the Central Los Angeles industrial marketplace. This is especially true given the amount of space being taken off the market near downtown Los Angeles. Many older and obsolete industrial buildings have been torn down or re-purposed to residential, retail or creative office uses. Many of these displaced tenants end up in the neighboring areas of Vernon or Commerce.
One headwind facing the Central Los Angeles industrial marketplace is the continued consolidation of the apparel industry. This quarter, American Apparel entered bankruptcy and was purchased by Gildan. In addition BCBG Max Azria has also filed for bankruptcy. This is leading to a consolidation of industrial assets for apparel manufacturing companies in the region.