Q2 2024 Industrial Market Outlook – Los Angeles
MARKET OVERVIEW
In Q2 2024, the industrial space vacancy rate in L.A. County rose, contributing to a 160-bps increase year-over-year, now standing at 5.3%, which is 50 basis points higher than the first quarter of 2024. Over the past two quarters, L.A. County added approximately 3.3 million square feet of completed construction to the market, while absorption resulted in a negative 8.3 million square feet during the same timeframe, indicating a shift in the industrial market’s trajectory. The amount of industrial space under construction decreased by 23.9% compared to last year and dropped 20.8% from the prior quarter. The rate of completed construction almost tripled quarter-over-quarter and increased by 48.0% year-to-date compared to mid-year 2023 as developers raced to market, completing warehouse space in the pipeline to capture the now waning demand spurred by e-commerce’s urgent need for capacity. The once double-digit rent growth, the primary driver for new construction, has now turned into a double-digit rent decline, with the average asking rent in Q2 dropping by 15.6% from the previous year to $1.52/SF triple net, down 7.9% from Q1 2024. Sales volume declined by 67.0% quarter-over-quarter and 33.5% year-to-date compared to the second half of last year, totaling approximately 6.6 million square feet at the end of Q2 2024. The average sale price per square foot dipped 2.5% quarter-over-quarter to $324, remaining 10.1% above last year’s level. While leasing volume rose 8.0% quarter-over-quarter, closing the first half of 2024 with approximately 17.4 million square feet leased, it declined by 6.0% year-to-date.
TRENDS TO WATCH
Lower leasing velocity remains a concern while providing ammunition for favorable deals. The increase in the number of options for warehousing will drive the market as companies seek out flexible solutions to meet evolving demand. Excess space will continue to be backed-filled. The amount of vacant sublease space on the market is down by 6.0% from Q1 2024, however it remains 25.9% higher than Q2 2023, totaling approximately 5.6 million square feet which is still just shy of the all-time high reached last quarter. This abundance of industrial space indicates that companies with warehousing requirements will have a variety of options as cargo coming through the ports remains up in pace. According to the latest figures from the Ports of Los Angeles and Long Beach, inbound loaded TEU cargo volumes combined—a significant driver of warehouse space demand in L.A. County—increased by 17% year-to-date as of May 2024.
