LA industrial investment on pace to hit another record
All of those Amazon orders have to go somewhere: industrial investment sales continue to grow in volume
More than $7.4 billion worth of industrial properties have traded in Los Angeles and neighboring markets this year and if that pace continues, 2019 is set to be a record year for investment sales.
Through August, sales volume has climbed 5.5 percent year-over-year across Greater L.A., the Inland Empire, and Orange County, according to a new CBRE market report.
That puts sales on pace to hit around $12 billion by the end of the year, more than record totals recorded last year and in 2015. It would make 2019 the fourth-straight year of growth in volume.
CBRE says e-commerce, last mile delivery, and cold storage are key drivers of demand, which is outpacing supply and pushing rents and sale prices higher. Average net rents are up 14 percent year-over-year through August and the average sales price is up to $160 per square foot, a 19 percent year-over-year increase.
Demand for cold storage is expected to grow significantly in the near future as online grocery shopping becomes more popular. The U.S. needs an additional 100 million square feet of new cold storage space over the next five years to keep up with projected demand.
Logistics space is particularly coveted where there’s easy access to the nation’s two business ports: the Port of L.A. and Port of Long Beach. The market is so tight in the L.A. area that tenants have broadened their search to the Inland Empire. 20 of the top 100 industrial leases signed nationwide last year were in the area. Developers hope to capitalize with massive logistics projects there.
Real estate investment trusts and institutional investors are key players in the space They acquired $1.2 billion and $665 million worth of properties in the region during the first eight months of the year, respectively, according to CBRE. Rexford Industrial Realty continues to be one of the most active investors in the region. It has closed several deals this year, including a $110 million acquisition of five properties.
CBRE’s report suggests that institutional investors are picking up properties from private owners. While net acquisitions are up for both REIT and institutional investors, private investors have sold off more than they’ve purchased this year and last year.
REITs and institutional investors are cutting deals elsewhere in the U.S. as well. In June, Blackstone Group closed one of the biggest industrial deals in history when it bought a national portfolio of warehouse properties from Singapore-based GLP Pte for $18.7 billion. Earlier this week, the New York-based private equity firm added 600 million square feet of warehousing space to its portfolio with a $5.9 billion deal with Colony Capital.
The market’s strong performance this year builds on performance last year, when land prices in L.A. jumped 25 percent over the prior year, and vacancies held below 2 percent, marking 17-straight quarters of sub-2 percent vacancies. Activity slowed towards the end of the year, however, amid concerns over a wider economic slowdown and limited space.