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June 27, 2017
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LA’s South Bay Industrial Market Closed Out 2016 with a Booming Fourth Quarter

3/06/17

Los Angeles’ South Bay industrial market closed out 2016 on a strong note, posting nearly 1.4 msf of net absorption in the fourth quarter of the year – the biggest three-month total since 2004, according to Colliers International’s quarterly surveys. These figures come ahead of new data showing a surge in January trade through the twin ports of Los Angeles and Long Beach.

“The chief reason behind the strong net absorption was that three new buildings totaling 810k sf were completed and leased in the fourth quarter,” said Colliers Executive Managing Director John Hollingsworth, who is based in the firm’s El Segundo office and oversees industrial brokerage throughout Greater Los Angeles. “Otherwise, businesses in the South Bay that are planning for growth generally are frustrated with the lack of available space.”

The fourth quarter’s strong absorption – which represented 60 percent of the total market’s gain in 2016 – was nearly offset by the 1.31 msf of new construction that landed on the market in Q4. That pushed up the South Bay’s total inventory by about 0.7% to 213.7 msf. South Bay has 16% of the total space in the Los Angeles Basin and is the third-largest industrial market in Southern California.

There were two buildings developed by the Trammell Crow Company in Compton totaling about 1.1 msf that were completed in the fourth quarter. One of the buildings was leased by UPS.
Even with the added inventory, demand drove down the vacancy rate 10 basis points to settle at 1%. Vacancy is tightest in the Gardena/Harbor Freeway submarket at 0.5% and Long Beach/Harbor Cities at 0.8 percent.

“Some of our users will find relief in the 1.2 msf of new supply that’s due for delivery this year,” said Colliers Vice President Charles Littell. “But the overall market is so tight that even the most marginal space is drawing multiple offers. Overall, asking lease rates are increasing annually by double digits, and some tenants renewing leases are seeing rent hikes of up to 45%.”

On the heels of Colliers’ fourth-quarter analysis, the Port of Los Angeles reported its busiest January in the port’s 110-year history. Dockworkers handled 826,640 20-foot equivalent units (TEUs), which was a 17.4 % year-over-year increase, port officials said. The Port of Long Beach reported that it handled 582,689 TEUs in January, an 8.7% hike from a year ago.

Port officials attributed the high container volume to retail stores replenishing inventories after the holidays. L.A. port officials said the high January traffic also was due to a spike in exports, up 28.7% from a year ago, and cargo ships from Asia calling ahead of the Jan. 28 start of the Lunar New Year.

The average triple-net rental rate of 75 cents per square foot is up more than 27% in the last four years and is projected to continue to climb as the shortage of available land severely limits new development.

Combined sales and leasing activity in South Bay in the fourth quarter totaled 3.3 msf with nine building sales and 55 leases of space that totaled more than 3 msf. Cap rates continue to remain tight in Los Angeles County, averaging 5.4% in Q4 2016. Investors are expected to continue their focus on prime infill locations.






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