Q3 2022 Industrial Market Outlook – Los Angeles
Available warehouse space in the Los Angeles County got a little less scarce for cargo coming from the ports of Los Angeles and Long Beach. The industrial market is seeing the light at the end of the tunnel from easing supply chain issues. While demand for warehouses hasn’t let up, rents continued rising as developers resumed completing new projects to meet demand. Completed construction increased 34.8 percent from the prior quarter, adding more than 3.4 million square feet to the market since the start of the year. Close to 5 million square feet of industrial space remained under construction as of Q3 2022.
Available industrial space increased 13.2 percent quarter over quarter, while the average asking rent increased 9.7 percent to $1.59 per square foot, triple net. The availability rate of industrial space moved up to 3.5 percent, up 100 basis points year over year, as approximately 5.5 million square feet of completed construction was added to the market over the same period. The market has leased more than 8.1 million square feet in the third quarter as construction added much needed inventory. Demand for last mile warehouse/distribution buildings continued to be driven by ecommerce, pushing construction, and constrains on land availability. Still, development persisted with warehouses getting completed and added to the inventory. The largest project under construction, a 1,000,720 square foot warehouse in the City of Industry remained available as of Q3 2022.
TRENDS TO WATCH
Demand for industrial space for years has outpaced the supply in Los Angeles County as development, rent, and sales prices skyrocketed. With an improved availability of industrial space, the situation will ease.
In the San Gabriel Valley industrial space under construction this quarter dropped 19.6 percent year over year, while completed construction grew by 40.6 percent adding more the 1.7 million square feet to the market. The availability rate of industrial space in the San Gabriel Valley this quarter registered 4.2 percent – up 160 basis points from Q3 2021. Asking rent in the San Gabriel Valley surged 50.5 percent from last year to $1.49 a square foot, triple net. South Bay, home of the ports of LA and Long Beach, which added close to 1.8 million square feet of completed construction over the same period, experienced a 120 basis point increase in its availability rate to 3.5 precent. The average asking rent in the South Bay rose 44.6 percent year over year to $1.75 per square foot – making it the highest rent market in LA County.
The region’s main logistics and distribution corridors are seeing an increase in the availability of industrial space, albeit priced significantly higher.
With cheap financing no longer a market reality, higher interest rates will slow the economy and impact real estate values by increasing borrowing costs.