For the Greater Los Angeles industrial market, it’s all a matter of logistics.
The shift toward last-mile facilities by e-commerce retailers and third-party logistics services has resulted in increased demand for light industrial real estate in the region, according to a first quarter market report from commercial brokerage CBRE.
Gross leasing activity in the industrial sector topped 12.1 million square feet for the first three months of the year — the highest level seen since 2013, the report shows. While companies such as Farmer Bros. and Toyota moved out of their spaces, new leases by firms such as Best Buy more than made up for them.
“The reshaping of the supply chain by e-commerce users placed a renewed importance on light industrial facilities,” the report said. “The mounting interest in light industrial facilities and constricted supply made the region a favorable owners’ market.”
The biggest transactions of the quarter included Best Buy’s deal to lease more than 470,000 square feet in Compton, as well as a 271,000-square-foot deal by Yusen Logistics in South Bay. Kitchen tool manufacturer Simplehuman USA leased 219,000 square feet in Long Beach and Capitol Logistics took 176,000 square feet in Carson.
As a result, the vacancy rate for industrial space was just 1.1 percent by the end of the first quarter and the average leasing rate had jumped to $0.76 per square foot, a 3.7 percent increase from the previous quarter and a 6.6 percent year-over-year increase. CBRE projects that rents will grow by an additional 6.6 percent by the end of the year.
Meanwhile, there was 6 million square feet of industrial space under construction in the first quarter, an increase of 27 percent since the end of 2016.
Blackstone Group’s real estate head Jonathan Gray recently said he was feeling bullish about logistics-driven properties. His firm is reportedly one of the suitors vying for the $13 billion warehouse real estate investment trust Global Logistic Properties, competing with private equity firm Warburg Pincus and several Chinese institutions.
“It’s hard not to be enthusiastic about logistics,” he said.
So, what could halt the logistics boom?
CBRE said there is some concern that new governmental restrictions placed on distributors and logistics firms could hurt the industrial leasing space. In on instance, a 45-day moratorium designed to stop traffic congestion in Carson halted the establishment of new truck yards, logistics facilities and container parking.