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April 22, 2024
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Los Angeles First Quarter Industrial Leasing Activity Lowest Since 2014


This report provided by Cushman & Wakefield

The Los Angeles (LA) industrial market recorded 5.8 msf of new leasing activity across 162 deals in Q1 2023, recording the lowest first quarter leasing total since 2014. New leasing activity increased 12.7% from the previous quarter but decreased by 1.9% year-over-year (YOY). From 2014 through 2022, the first quarter of the year typically averaged 8.6 msf, ranking Q1 2023 activity 33% below the average.

However, this isnít always a fair comparison as new deals can only be signed when there is available space for lease. While 2020 and 2021 recorded a similar total new leasing, overall available space for lease was much higher (116.7 msf) in 2020 compared to 2021 (60.6 msf). When comparing leasing activity to the available square footage on the market, 61% of the total available square footage was leased in 2021, compared to 36% in 2020 even though the amount of space available for lease in 2021 was 56.1 msf less compared to 2020. This metric helps to explain the 39% YOY drop in leasing in 2022 during which new leasing accounted for 22% of 26.6 msf available across LA market. This activity level, however, was in line with the pre-pandemic average of 28%.

Renewals accounted for the second highest share of total leasing in Q1 2023, with 2.3 msf of leasing activity, representing 28% of the total leased space over the past 10 years. In 2022, renewals accounted for 9.4 msf or 30% of total leasing, the highest share over the last 10 years. With the overall vacancy rate at sub-2%, renewals may continue to make up a larger percentage of total leasing due to limited supply and remain above the 10-year average of 21% share.

With 78% of the LA industrial inventory base comprised of warehouse and distribution (W/D) buildings, it is no surprise to see most of the leasing activity completed in these properties. Approximately 90% of all new deals signed in Q1 2023 occurred in W/D properties, surpassing the 10-year W/D leasing average of 86% compared to total leasing. Most of the leasing activity in the Los Angeles market has historically taken place in the LA South and LA Central submarkets, which continued in Q1 2023.

Tenants representing the transportation, warehousing and utilities sector accounted for the largest share of leasing activity, followed by wholesalers. The Ports of Los Angeles and Long Beach being major container ports likely contribute to the demand for space from these sectors. Combined, these two sectors made up 59% of total leasing from Q1 2022 through May 2023. All five of the top largest leases since Q1 2022 were signed by tenants within these two sectors.

The most common lease length in the LA industrial market is 60 months, but it varies slightly across different markets. The longest leases were signed in the LA South submarket, possibly due to high rents and rent growth in recent years and tenant willingness to lock in the current rate before landlords demand even higher rents. The San Gabriel Valley had the shortest lease terms, coinciding with the lowest signing rent (Figures 8 & 9). Looking at lease expiration dates, 1,732 leases are set to expire totaling 98 msf over the next five years.

Overall, the Los Angeles industrial leasing market in Q1 2023 saw lower activity compared to previous years, likely influenced by factors such as limited available space and variations in the industry sectors driving demand. Renewals played a significant role due to limited supply, and warehouse and distribution properties continued to dominate leasing activity.

This report was prepared by:

Jolanta Campion
Senior Research Director
Southern California

Joseph Rosena
Research Manager - Industrial
Southern California

Cushman & Wakefield

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