LA industrial market sees dip in leasing

Brickyard's Compton development at 13633 South Central Avenue (credit: Brickyard)
Brickyard's Compton development at 13633 South Central Avenue (credit: Brickyard)

As leasing demand is rising above the stagnant supply in the greater L.A. industrial market, the average rent rate continues on its upward streak. With multiple tenants pursuing each available lease, the power is in the hand of the owner.

But on the downside of this, the lack of availability has led to a reduction in lease and sale activity, with quarter-over-quarter gross activity down 12 percent in the first quarter of 2016, according to a report by CBRE. 

The average asking rent at industrial properties was 71 cents a square foot a month in the first quarter, up one cent since the previous quarter. While not a steep increase for the quarter, it represents a 16.5 percent increase when compared with the same quarter last year.

The Downtown Los Angeles submarket was the most expensive with an average rent of 78 cents a square foot a month. Commerce/Vernon was the cheapest, at 62 cents.

Meanwhile, activity was at a record low. The market generated 7 million square feet of net activity in the first quarter of 2016, a figure that reflects the lowest level activity since 2008, when activity totaled 7.6 million square feet in the final quarter. Activity is projected to remain low through the end of the year, the report projects.

During the first quarter, the market saw more than 1.2 million square feet of positive net absorption. Thanks to pre-leasing activity, the quarter-over-quarter net absorption rate rose 41 percent. Out of the 10 industrial buildings that finished construction during the first quarter of 2016, six were pre-leased, totaling over 580,000 square feet.

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According to the report, most — or 340,000 square feet — of the absorption took place in San Gabriel Valley.

Alongside positive absorption, vacancy has further diminished since the end of 2015. The overall rate in the first quarter was 1.2 percent, with Mid-Counties at its lowest vacancy in history: 0.5 percent.

“Moving forward in the near-term, [falling vacancy] is not expected to change as a good portion of the new-to-market supply are sublease availabilities,” the report said.

New supply is nonetheless on its way. L.A. now has more than 3.8 million square feet of industrial properties undergoing construction, largely concentrating in South Bay and San Gabriel Valley. The two areas account for 3.2 million square feet of the total. Another 600,000 square feet takes place between Commerce/Vernon, Mid-Counties and Ventura.

Development activity is picking up, with Alere set to break ground on a 115,000-square-foot property in Montebello, while Pacific Development nears a completion on their three-building development in Vernon. Other noticeable development activity includes Sterling Gateways million-square-foot speculative development in San Fernando Valley and Brickyard’s project of a similar size in Compton.

However, most of this development won’t be complete until later 2016 or early 2017.