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1/10/22
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Los Angeles Industrial CRE Market Update 4th Qtr. 2021
This report provided by real estate services firm Kidder Mathews
MARKET HIGHLIGHTS
Direct vacancies decreased in the fourth quarter to conclude at 1.1%.
Direct asking lease rates grew by 15% YOY to $1.30/SF on a triple net basis.
The average sale price in 2021 was $256.86/SF with cap rates settling at 4.5%.
MARKET DRIVERS
Direct net absorption reported positive gains for the 4th consecutive quarter with 1.98 msf absorbed, further compressing direct vacancies to a record low 1.1% in 4Q 2021.
Competition for industrial space has never been higher. Lack of available options, rapid growth of ecommerce, and tenants needing to expand their industrial footprint to fulfill their just-in-case approach have caused competition for available space to spike. Rental rates concluded the year at a new all-time high of $1.30/SF on a triple net basis, a 15% increase YOY.
Capitalizing on demand, it has become normal for landlords to offer little to no concessions and annual increases between 4%-5%.
Over 2.5 msf was delivered in 2021 with 3.6 msf currently under construction. Due to the lack of developmental land, developers have remained aggressive for renovation and repositioning projects which have pushed land values over $120/SF.
ECONOMIC REVIEW
The Los Angeles County unemployment rate decreased 70 BPS from the month prior to 7.1% in November 2021. Job gains between October and November reported an increase of 42,500 jobs.
The port processed 811,460 TEUs in the month of November and is set to break a new record with an expected volume of 10.7M TEUs by year end, 13% more than the previous record set in 2018.
NEAR TERM OUTLOOK
As more occupiers switch from just-in-time to a just-in-case model to store enough inventory for any future supply issues, demand for industrial space will remain extremely competitive. Tenants will need to act quickly as availabilities dwindle across the LA Basin, further propelling rental rates past unprecedented numbers with rent growth forecasted to be between 10%-15% in 2022. With limited options across the metro and space commonly leased a year in advance, we can expect the volume of renewals to increase in the following quarters.
Source: EDD, Costar, Port of Los Angeles
This report produced by Kidder Mathews Director of Research Gary Baragona
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