Vacancy & Rents Start 2018 Flat
Net absorption in the Central Los Angeles submarket totaled negative 114,700 square feet for the quarter, the second quarter in a row of negative absorption. New space totaling 553,600 square feet was brought to the market this quarter in the South Bay submarket while 147,100 square feet is currently under construction and is expected to be delivered in the next 12 months.
The vacancy rate in San Fernando Valley and Ventura County increased 30 basis points from 1.7% to end the quarter at 2%. This increase was due to vacant construction completions but also space givebacks at the start of the year. San Gabriel average asking lease rates held steady at $0.72 PSF NNN. Unlike every other infill market in Los Angeles County, net absorption in the Mid-Counties submarket was positive in the first quarter of the year at 1,123,600 square feet. This was due to the addition of 1,104,100 square feet of industrial space added to the base this quarter, the majority of which was pre-leased.
The vacancy rate decreased by 50 basis points in the Orange County submarket to 2.1% during the first quarter to a historical low. Construction completions totaled 5,072,100 square feet in the Inland Empire submarket this quarter, which is lower than the 8.7 million square feet delivered last quarter.
- Asking rents started 2018 by holding steady at $0.70 per square foot (PSF) triple net (NNN), which is the highest reported rental rate for the Greater Los Angeles Basin.
- Vacancy remained at 2.5% despite the addition of the 7.3 million square feet added to the base this quarter.
- The Greater Los Angeles Basin industrial market absorbed 4,434,000 square feet of industrial space this quarter with the majority of that being absorbed in the Inland Empire.
Industrial space remains scarce in the downtown industrial core as industrial product continues to be converted to non-industrial uses. A significant downturn impacting manufacturing may lead to more industrial assets being repositioned to suit the changing nature of the downtown industrial core. Vacancy in South Bay remains very low and there remains significant upward pressure on asking lease rates, which remain at the highest point ever for the South Bay region. Space in San Fernando Valley and Ventura County remains tight and land for industrial uses remains scarce. Once construction for the current wave of development is complete, there is not ready supply in the pipeline to replace them. Construction is expected to remain low in future quarters.
Development in Orange County is a challenge as many industrial properties and development sites are converted to residential and other commercial uses. In the Inland Empire, new construction is expected to average about five million square feet a quarter for the rest of the year.