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10/13/22
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This report provided by real estate services firm Kidder Mathews
Los Angeles Industrial Market 3rc Quarter 2022 Update
Market Highlights
Direct vacancies remained one of the tightest in the third quarter at 1.8%.
Direct asking lease rates grew by 38.4% quarter-over-quarter to $1.65/SF on a triple net basis.
The average sale price in 3Q 2022 was $361.08/SF with cap rates settling at 4.4%.
Market Drivers
Direct net absorption in 3Q 2022 reported negative with 254,977 SF. shortage of supply than demand because many inventories were eliminated or converted into new logistical facilities during this period because of low inventory growth. The direct vacancy rate is still at a historically low 1.8%.
Industrial real estate is one of the most sought-after property categories in the Los Angeles market. The asking rent model for warehouse and distribution space forecasts U.S. rent growth of about 9.0% in 2023 and 5.0% in 2024, provided that demand outpaces supply in the industry. Triple net rental rates ended the quarter at an all-time high of $1.65/SF, a 38.4% year-over-year trend increase.
Although at a slower rate, the forecast anticipates future appreciation to continue. The need for industrial property has grown as a result of the entertainment video streaming and e-commerce operator industries. Due to a lack of available land and the demand for warehouse space, developers are focusing on infill development sites that can be demolished and rebuilt as new warehouses.
Over 1.3 msf was delivered in 3Q 2022, with 3.7 msf now under development. Developers have continued to pursue restoration and repositioning projects, driving land values to an average of $20,247/AC, because of a lack of available construction property, high land costs, and a lack of available development sites.
Economic Review
The Los Angeles County unemployment rate increased by 40 BPS from the month prior to 4.9% in August 2022. Jobs decreased by 88,000 over the prior quarter to 4,702,700 in August 2022.
The port processed 805,315 TEUs in the month of August, a 15.6% decrease compared to the same time last year.
Near Term Outlook
Industrial real estate will continue to be in high demand, and landlords will compete on pricing. The metropolitan area now has one of the lowest vacancy rates in the country, and rental prices, which have been rising for more than a decade, are pushing to new highs as a consequence of rapid surge in demand for industrial space. Given the little space left for tenants to lease and the fact that much of it is in out-of-date industrial facilities that cannot accommodate many space users, net absorption levels in 2022 have been more subdued.
Source: EDD, Costar, Port of Los Angeles
Report prepared by Kidder Mathews Director of Research Gary Baragona
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