Asking Rents Increase As Space Remains Limited

The Mid Counties remains the tightest industrial market in Southern California, with a vacancy rate of only 0.6%. This has left limited options for firms looking to expand in the region. Vacancy remains at record lows, ending the quarter at 0.6%. There was 92,400 SF of positive net absorption this quarter. Net absorption has been positive for the last 28 quarters. Rents increased to $0.66 PSF NNN, which is the highest average rental rate ever for this region.

Key Takeaways:

  • Average asking rents increased $0.02 PSF NNN over the quarter to $0.66 PSF NNN. Rates have surpassed their previous peak of $0.64 PSF NNN last seen in 2007.

  • The overall vacancy rate was 0.6%, unchanged over the previous quarter. Over the past 12 months, the vacancy rate has decreased 20 basis points from 0.8% reported in Q1 2016.

  • Sales and leasing activity was 772,100 SF for the quarter, including 6 sales totaling 115,200 SF and 20 leases totaling 656,900 SF.

  • Net absorption was positive at 92,400 SF for the quarter.

  • There was 184,500 SF of new space added to the market in a single fully leased building. There remains 635,300 SF of space currently under construction.

Outlook:

The Mid Counties market has hit a record low vacancy rate of 0.6%. This is putting upward pressure on asking rates which have hit a new market peak. Consequently, there is continued strong demand to purchase real estate assets rather than leasing them. There has been increased investor focus on fully leased industrial assets in prime infill locations. Consequently, we expect further demand to drive up sales prices, further compressing cap rates. Increasing rental rates may generate new construction activity and building demand. Vacancy is expected to remain below 1% for the foreseeable future. There is a lack of space for businesses to expand in the Mid Counties.