Industrial landlords shed tenants to make way for higher-credit companies

Landlords not renewing leases even without lining up more qualified tenants

Rick Ellison and a warehouse (Credit: Mark Hunter via Flickr)
Rick Ellison and a warehouse (Credit: Mark Hunter via Flickr)

Strong demand has Los Angeles-area given industrial landlords in Los Angeles the confidence to be especially picky about their tenants, and that’s leaving many small companies without a place to go.

Those smaller tenants find themselves competing with major national and Fortune 500 companies when a renewal rolls around, and the competition isn’t just about who can pay higher rent. Landlords also want to secure a higher-credit tenant, according to an analysis by Rick Ellison, executive managing director at Cushman & Wakefield.

Those tenants are especially appealing now, given concerns that the cycle is past its peak. Having tenants with higher credit scores better insulates landlords in a downturn. In turn, the overall market becomes better insulated.

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Landlords are confident enough in demand that they are “far more frequently” opting to not renew leases in order to open spaces for higher-credit tenants they haven’t even yet locked down, Ellison said.

The South Bay submarket, with a vacancy rate around 1.2 percent as of May, is the starkest example of the trend in L.A. Competition for modern Class A properties is so fierce that tenants and investors are turning to older properties, which is driving up those prices closer to Class A properties.

They’re also looking at the Inland Empire, which has lower rents and more modern space in the pipeline. But the Inland Empire has its disadvantages, Ellison said. It’s further from the huge pool of consumers living in L.A. and Orange counties and further from the Ports of Los Angeles and Long Beach, the main ports of entry for vast amount of goods imported into the U.S. [Cushman & Wakefield] – Dennis Lynch