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The Real Deal Los Angeles

Industrial landlords’ wonderland: LA rents rise 8.2% as e-commerce elbows in

Vacancy stayed tight at 1.1 percent in Q2: report
By Laurie Dove | August 02, 2017 01:30PM

Updated, Wednesday, September 6, 4:25 p.m.: We want it, and we want it now. That’s the consumer philosophy that keeps L.A.’s industrial vacancy low, while third-party logistics, e-commerce and delivery services gobble up space — including “final mile” facilities that can deliver goods faster to customers.

Industrial vacancy remained at 1.1 percent in Greater Los Angeles during the second quarter, unchanged from the quarter prior and the year prior. Rents rose accordingly: 8.2 percent year-over-year, according to a CBRE report.

When you look a few years back, the change is even more stark. Asking rents rose 26 percent from the third quarter of 2014 to the second quarter of this year.

The second quarter saw its share of notable we-want-it-now transactions. FedEx committed to lease 450,000-square-feet of under construction in the Arcadia Logistics Center in Arcadia, while UPS leased 478,000 square feet in Mid-Counties in March. Williams-Sonoma renewed its 1.2 million-square-foot lease at 21508-21758 Baker Parkway in the City of Industry.

Class A and B industrial rents reached 78 cents per square foot per month in the second quarter—and they are expected to rise. CBRE Economic Advisors forecasts that rents will rise 4.4 percent in 2017 and 5.2 percent by mid-2018, turning an already strong landlord’s market into a beast.

As Class A space became increasingly difficult to find and landlords began to offer fewer concessions—like paint, carpet or free rent— demand has increased for Class B and C product. But supply has dwindled across all classes.

“Institutional landlords have scaled back free rent significantly,” said Billy Walk of CBRE.

Development hasn’t caught up with demand, but there is 7.6 million square feet of product currently under construction in Greater Los Angeles, according to a report from Colliers, which forecasts that new completions will measure 4.8 million square feet by year’s end.

Chart by Naiwen Tian

Correction: A previous version of this article had an error regarding the size of FedEx’s lease in Arcadia. It is 450,000 square feet.