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The Real Deal Los Angeles

LA’s industrial market expected to remain strongest in nation: report

Ten-X Commercial predicts rents will rise by 16.7 percent and vacancies tighten even more
By Dennis Lynch | October 26, 2018 02:30PM

Ten-X Commercial CEO Tim Morse and the Port of Long Beach’s container yard

The Los Angeles industrial market is the strongest in the country and will continue to outpace the rest of the country, a new report says.

Ten-X Commercial, an online real estate marketplace, made L.A. its top market to buy industrial assets, predicting that rents will grow by 16.7 percent to $8.10 per square foot by 2022. Vacancies are projected to ease slightly, from 2.4 percent last year to 2.8 percent in 2022.

Demand among potential tenants is strong enough that some industrial landlords are choosing not to extend leases for smaller companies. That’s because there’s enough demand for space from larger national tenants with higher credit scores. 

Around the country, the industrial sector is performing well. The availability for warehouse space nationwide is around 7.2 percent, the lowest since 2000, the height of the dot-com boom. The market in California is the nation’s strongest because of high demand for warehouse and logistics space driven by e-commerce and the legal marijuana industry, according to Ten-X.

This year has seen a number of big-money trades for industrial space, as well as Prologis’ $8.4 billion purchase of rival DCT Industrial Trust, which has significant Southern California holdings.

Ten-X, based in Irvine, put five markets in California on top of its buy list. Trailing L.A. are Sacramento, San Francisco, Oakland and San Jose. Ten-X predicts all of them will see double-digit percentage increases in rents.

While that’s good for investors, it means the margins will shrink for tenants. The tightness of the L.A. market is already driving tenants out to the Inland Empire, where vacancies were up around 3.4 percent last year. A strong pipeline in the Inland Empire is expected to keep vacancies from dropping near L.A. County levels.

The Inland Empire made Ten-X’s list of markets to sell. The firm predicts rents in the Inland Empire will increase by 6.5 percent through 2022 and predicts vacancies will almost triple from 3.4 percent to 9.5 percent in the same time frame.

Other markets Ten-X sees weakening include Cleveland, Ohio; Suburban Maryland; Dallas, Texas; and San Antonio, Texas.