Q3 2023 Industrial Market Outlook – Los Angeles
The industrial market in Los Angeles County underwent a turnaround as it shifted from the relentless demand for warehouse space. Completed construction surged by an impressive 338% quarter over quarter, resulting in a 190-bps increase in the vacancy rate, which now stands at 3.9%—the highest it has been in a decade. New developments and increased supply of industrial space are now trailing diminished demand. In Q3 alone, completed construction added approximately 3.1M square feet. Over the past five quarters, LA County added roughly 4.9M square feet of completed construction to the market, while absorption resulted in a negative 16.2M square feet during the same timeframe.
TRENDS TO WATCH
With supply chain disruptions now subsided and leasing velocity moderating, developers are likely to pause construction. Companies that expanded their warehouse space throughout the pandemic to accommodate the e-commerce surge have actively reduced excess space. In Q3, the industrial market reached an all-time high in vacant sublease space, indicating that companies that overestimated their space requirements have left warehouses empty and are seeking subtenants. This has resulted in a significant increase in the amount of vacant sublease space on the market, up by 19.6% from the previous quarter and by 397% from the same time last year, totaling approximately 5.7M square feet. Moreover, 12.7M square feet of vacant space were directly added to the market since Q3 2022, accompanied by 3.1M square feet of completed construction year to date in 2023.