LA’s industrial market may be at max capacity

Leasing and I-sales that have been surging were down in Q3: report

Oct.October 09, 2019 10:00 AM
NAI Capital Vice President of Research, Marketing, and Communications J.C. Casillas and the Port of Los Angeles (Credit: iStock)
NAI Capital’s  J.C. Casillas and the Port of Los Angeles (Credit: iStock)

For the first time in years, Los Angeles County’s industrial market showed signs of slowing down, but it wasn’t for lack of demand.

Low availability and high pricing are discouraging leasing, according to a new report from commercial brokerage NAI Capital.

Leasing dropped 44.6 percent year-over-year, but average asking rent held steady at its all-time peak of $1.01 per square foot. Vacancy tightened slightly year-over-year to 2.3 percent.

That’s similar to the dynamics in L.A.’s residential market, where high prices and low supply have led to a slowdown. The median sales price for a home has climbed consistently over the last few years, setting a new record. But the prices are giving prospective buyers pause, and as they keep rising, sales volume has dropped.

In the industrial market, sales volume dropped 40 percent year-over-year in Q3. Last year was one of the strongest on record for the industrial market, with the price of land jumping 25 percent and the market only slowing toward the end of the year because of investor concern over the timing of the cycle, and limited available space.

The trade war with China appears to be tempering demand as well, according to the report. Imports to the key ports of L.A. and Long Beach were down this year through August by 2.4 percent, compared to last year’s 3.1 percent increase. Exports through the ports were down 6.5 percent year over year in the third quarter.

Sales volume has totaled $2.9 billion so far this year. Even with a slower quarter in L.A. County, investors are on pace to set another record for sales for the wider Southern California region.

Through August, sales volume is up 5.5 percent year-over-year, putting the region on pace for $12 billion in sales this year.

Institutional investors are helping to drive the Southern California industrial market. This year saw big plays by giants including Prologis, L.A. specialist Rexford Industrial Realty, and pension fund adviser Alere.

Even as leasing slows, there’s not enough space being built to alleviate the pressure in the near term — 6.9 million square feet of leasing in the third quarter outpaces the 5 million square feet of space under construction.

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