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The Real Deal Los Angeles

Industrial LA rents continue to skyrocket despite uptick in construction

Approximately 10.43M square feet of industrial space was leased in the Greater Los Angeles area in the second quarter
A Walmart.com fulfillment center (Wal-Mart)

A Walmart.com fulfillment center (Wal-Mart)

Unrelenting tenant demand for L.A. industrial properties persisted in the first half of the year, causing rents to skyrocket and cap rates to compress, according to a new report by Colliers International.

Approximately 10.43 million square feet of industrial space was leased in the Greater Los Angeles area in the second quarter of the year, up from just 7.03 million in the first quarter, fueling the 10 million square feet of net absorption reported in the first half of the year, the report shows. The average net effective rent for the region was $5.26 a foot, up from $4.92 a foot a year earlier.

In L.A. County, most of that growth was driven by activity in the South Bay area, which currently has a less than 1 percent vacancy rate. Among the biggest deals was Goodman Birtcher’s purchase of a pair of massive distribution centers in Santa Fe Springs and the San Gabriel Valley city of El Monte. Together, they comprise 133 acres of land with just 2 million square feet of distribution space.

CoStar estimated that Goodman paid approximately $240 million, or roughly $115 per square foot, for the two sites.

The rise in rents comes despite a major uptick in the number of industrial facilities being built. A record-breaking 45 big-box facilities totaling 22.5 million square feet were added to the total inventory in the Greater L.A. area over the past 12 months, the report shows.

Nationwide, approximately 53.7 million square feet of industrial space was leased in the first half of the year, up 10.7 percent from 2015. Effective rents were also up 13.1 percent, to an average of $4.77 a foot, compared to the same period last year. The average cap rate on a sale was just 5.5 percent.

Meanwhile, record 98 big-box industrial facilities totaling 60 million square feet were added to the total U.S. inventory in the first half of the year, a record amount.