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SoCal’s Industrial Markets Remain Strong with Historically Low Vacancy Rates

8/01/16

Southern California’s metro area industrial market continues to register historically low vacancy numbers, offering a positive forecast for the region’s landlords but limited options for tenant expansion. The Inland Empire, the nation’s premier distribution/warehousing market, continues to lead the way on both sides of the market equation.

This was the central message emanating from the 2nd Quarter, 2016 Industrial Market Review released by the AIR Commercial Real Estate Association/Xceligent.

“The Inland Empire continues to see strong positive net absorption, Class A development activity, and is attracting some of the nation’s larger E-commerce and distribution companies,” said Matt Nelson, director of analytics for AIR/Xceligent.

Nelson pointed out that Amazon, Wayfair, QVC, Walmart, Georgia Pacific and Home Depot continue to expand in the Inland Empire. “All of these companies have signed over one million square feet of new leases in the past 12 months. Wolverine Shoes recently announced they pre-leased a new 720k sf distribution facility in Beaumont, which is expected to break ground later this year,” Nelson said.

Refocusing on the overall Southland market, Nelson reports that total leasing activity along with net absorption were down compared to the past few quarters, but that, overall, everything is headed “in the right direction for landlords. Lease rates continue to trend upwards and tenants who are faced with renewing their leases are finding prices to be much higher than they were three to five years ago,” Nelson said.

Breaking the study down by submarket, the AIR/Xceligent reports:

• The Orange County industrial market continues to see healthy activity by closing out the second quarter with positive net absorption of 765.3k sf. OC North had the strongest showing of the four county submarkets, posting 691.2k sf of net absorption, lowering the submarket’s vacancy rate to 1.5%.

• The Inland Empire closed out the second quarter of 2016 with 4.6 msf of positive net absorption, bringing the vacancy rate down to 3.1 %. Meanwhile, 13 msf of new product has been delivered so far in 2016, and 4 msf remains on the market.

• The San Fernando Valley closed out the quarter with strong leasing and sales activity. The market’s vacancy rate now sits at 1.5%, down .2% from the previous quarter (1.7%).

• The South Bay – With one of the lowest vacancy rates in the county and very little available space, the South Bay managed to record 243.4k sf of positive net absorption. The “Brickyard”, a new two-building industrial project in Compton, will deliver in the 3rd quarter, bringing over a million square feet of new space to the market.

• Mid-Counties is the region’s tightest market with a vacancy rate of 0.7% and only 2.4 msf available. Absorption will remain flat for a few quarters until new projects are delivered.

• San Gabriel Valley – The L.A. East submarket showed strong tenant demand by absorbing 214.6k sf, bringing the vacancy rate down to 0.9%. Even with new construction in the pipeline, the vacancy rate should remain unchanged due to these projects most likely being leased out fairly quickly, the study shows.

• Central L.A. – The central region absorbed 198.2k sf in Quarter 2, bringing the total for 2016 to 915.5k sf. With only 435.9k sf under construction and lack of Class A space in Central L.A., “expect these projects to get leased up before they are completed,” Nelson said.

• Ventura County – This area’s industrial market continues to see light tenant movement, positing 73.6k sf of net absorption at the close of the second quarter. The county’s vacancy rate remains at 3.8%.





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