2017 Ends With Rents At All Time High

The Mid-Counties remains the tightest industrial market in Southern California, with a vacancy rate of 0.8%. This has left very limited options for firms looking to expand in that market. New construction in future quarters will likely be absorbed quickly as available industrial space remains scarce.

The vacancy rate remained low, ending the quarter at 0.8%. Currently, 1,616,800 SF of buildings is under construction. Positive net absorption reached 298,500 SF this quarter. Net absorption has been positive for the last 31 quarters. Tight market conditions for quality buildings continue to limit options for tenants looking to expand. Rents increased to $0.72 PSF NNN, which is the highest average rental rate ever for this market.

Significant barriers to creating new supply and increased demand by tenants are putting continued upward pressure on rents. This will continue to make the Mid-Counties one of the more expensive markets in Southern California. Development opportunities continue to be scarce and land prices for even marginal industrial parcels are seeing new highs.

Key Takeaways:

  • Average asking rents increased $0.02 PSF NNN over the prior quarter to $0.72.
  • The overall vacancy rate was 0.8%, up 20 basis points from the previous quarter. Vacancy has remained below 1% for the last nine quarters.
  • Sales and leasing activity totaled 1,350,800 SF for the quarter, including seven sales (167,600 SF) and 24 leases (1,183,200 SF).
  • Net absorption was positive at 298,500 SF for the quarter.
  • Approximately 1,616,800 SF remains under construction with much expected to be completed in 2018.

Outlook:

Vacancy is expected to remain below 1% for the foreseeable future. Lack of space continues to hinder businesses from expanding in the Mid-Counties. Tenants are advised to start their building search well in advance of their lease termination. Absorption is likely to be positive in future quarters even as new industrial product is delivered to the market.

Rents will continue to rise in future quarters and tenants can expect to pay a premium for all types of industrial space. Tenants who signed leases five years ago can expect their rents to increase significantly upon renewal. Increasing rental rates and sales prices, along with continued low vacancy rates, may lead to older buildings being redeveloped into new projects.