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5/15/23
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This report provided by real estate services firm NAI Capital Commercial
MARKET OVERVIEW
In Q1 2023, Ventura County's industrial market experienced a 77.1% increase in vacant space from Q4 2022, with demand for warehouse-distribution space causing the existing inventory to be depleted and rents to soar. Although the vacancy rate increased by 60 basis points from last year, it remained extremely low at 1.4%, and the average asking rent increased by 13.6% year over year to $1.00 per square foot triple net. In 2020, only 2.22 msf of completed construction was added to the supply of industrial space, of which Amazon's fulfillment center in Oxnard represented about 70%.
Despite having 250k sf of leasing volume and only 710.4k sf of vacant space, Q1 did not have any space under construction. The market's supply of industrial space remained unreplenished due to a lack of speculative construction, which has constrained the market for large state-of-the-art warehouse-distribution facilities. Demand remained steady even as the ecommerce acceleration from the pandemic eased, and there is still a shortage of last mile distribution facilities.
TRENDS TO WATCH
The absence of speculative construction will continue to prop up rents and sale prices while the market remains tight. Businesses looking for large state of the art facilities in Ventura County will need to pursue built-to-suit opportunities. Interest rates have risen, halting industrial building sales. Central Ventura County experienced a 3.6% rise in leasing volume quarter over quarter, while sales volume plummeted 66.3% and the vacancy rate registered the tightest in the region at 1.2%. In North Ventura, leasing volume increased 116.5% quarter over quarter, with sales volume down 100% to zero and the vacancy rate registering 1.7%. In the West, sales volume dropped 96.7% quarter over quarter as the median sale price per square foot soared 30.9% from last year.
Overall, Ventura County experienced a 6.2% rise in leasing volume from 2022 in Q1 2023. Developers are monitoring the pressure of demand depleting industrial space, bidding up pricing, which may be a catalyst for speculative construction and redevelopment opportunities. However, high construction costs and interest rates will remain an impediment to increasing supply of industrial space.
Tenants looking to purchase industrial space to control occupancy costs will need to weigh the impact of rising interest rates on their bottom line. Square footage sold decreased 91.8% year over year, as the cost of borrowing squeezed sale activity. With the average sale price up 25% year over year, sale prices will feel the effect of rising interest rates. Constrained construction and pressure from users to lease versus buy will remain a driving force behind pricing for warehouse-distribution space in 2023.
This report prepared by J.C. Casillas, Managing Director, Research, NAI Capital Commercial
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