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8/07/23
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This report provided by real estate services firm NAI Capital Commercial
MARKET OVERVIEW
In Q2 2023, the industrial market in Ventura County experienced a notable decrease in vacant space by 9.1% compared to Q1 2023. The high demand for warehouse-distribution space drove this decrease, depleting the existing inventory and causing rent prices to soar. Despite the vacancy rate increasing by 40 basis points from the previous year, it remained exceptionally low at 1.4%. The average asking rent also rose, by 11.6% year over year, but it decreased by four cents from its record high last quarter, reaching $0.96 per square foot triple net.
As of midyear 2023, the total vacant sublease space amounted to 30.9k sf, which is only half the level observed during the pandemic shutdown in Q2 2020. Since the Q2 2020 pandemic shutdown, the average rent has significantly increased by 41.2%. However, development activities have been relatively lackluster, with industrial space under construction remaining flat compared to the previous quarter and showing only an 8.2% year-over-year rise compared to the previous year.
Despite a leasing volume of 953.9k sf in Q2, the availability of vacant space was limited to just 687.1k sf, leaving the 74.3k sf currently under construction well below the demand for warehouse space. The shortage of industrial space was exacerbated by the absence of speculative construction, which has constrained the market for large, state-of-the-art warehouse-distribution facilities. Even as the acceleration of e-commerce from the pandemic eased, demand for industrial space remained steady, and the shortage of last-mile distribution facilities continues to persist.
TRENDS TO WATCH
The market will continue to prop up rent and sale prices while the absence of speculative construction keeps it tight. Businesses that seek large state-of-the-art facilities in Ventura County will need to scour the market for opportunities. Interest rates have risen, and this has halted industrial building sales. In Central Ventura County, leasing volume experienced a remarkable 204% rise year over year, while sales volume plummeted by 52.6%, and the vacancy rate remained low at 1.5%. Similarly, in North Ventura, leasing volume decreased by 43.6% quarter over quarter, with sale volume down 71.6%, and the vacancy rate registering at 1.3%. In contrast, the West bucked the trend, experiencing a flurry of small pent-up deals that drove sale volume up by 489% year over year, and the median sale price per square foot soared by 39.4% from last year.
Overall, Ventura County witnessed a 34.2% rise in leasing volume but experienced a significant 46.4% drop in square footage sold in Q2 2023 compared to the same period in 2022. Developers are closely monitoring the pressure of demand depleting industrial space, which is bidding up pricing and may potentially act as a catalyst for speculative construction and redevelopment opportunities. However, high construction costs and interest rates will continue to impede the increased supply of industrial space.
Tenants looking to purchase industrial space to control occupancy costs must carefully weigh the impact of rising interest rates on their bottom line. As the cost of borrowing squeezes potential buyers, sale activity will be impacted. Moreover, with the average sale price up by 39.8% year over year, sale prices will feel the effect of rising interest rates. The constrained construction and pressure from users to lease rather than buy will remain the driving force behind pricing for warehouse-distribution space in 2023.
This report was prepared by:
J.C. Casillas
Managing Director, Research
NAI Capital Commercial
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