Industrial Rents Continue Upward

South Bay remains the premier market for distribution companies and cargo-centered sea-and-air industrial users. It is nearly fully developed, so land is incredibly scarce. Tight market conditions and a lack of larger modern space continue to be deterrents that drive tenants to neighboring markets, primarily to the east.

Key Takeaways:

  • Industrial rents increased $0.02 per square foot (PSF) triple net (NNN) over the quarter to $0.81. Rents increased 9.4% over the last 12 months and are at their highest point ever.

  • Net absorption was 11,300 square foot (SF) this quarter, essentially flat. Future quarters will likely see positive absorption as new buildings are leased.

  • Sales and leasing activity totaled 1,741,500 SF, which breaks down into eight sales (196,700 SF) and 43 leases (1,544,800 SF).

  • New space totaling 776,500 SF is currently under construction and will finish in the next 12 months.

  • Vacancy increased 20 basis points on vacant construction completions this quarter but still remained near historic lows.

Outlook:

Tight market conditions are expected to persist in the South Bay industrial market with vacancy rates below single digits expected in future quarters. Rents are at their highest-ever levels, 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.