Pre-leasing in play as industrial vacancy nears zero
Inland Empire rate of 0.8% is lowest in nation; LA, Orange County also tight
UPDATED, Jan. 13, 2021, 2:29 p.m.: Logistics and distribution firms might have better luck securing space in Orange County than in Los Angeles and the Inland Empire. But anywhere you look, there ain’t much.
Vacancy rates across Orange County were 2.3 percent in the fourth quarter, compared to 1.1 percent in Los Angeles and 0.8 percent across the Inland Empire, according to recent reports from Newmark.
The data make the Inland Empire the tightest industrial market in the nation. A year ago, vacancy there was 3.1 percent. Three quarters later it was 0.9 percent.
Low vacancy rates stem not just from high demand but also from a lack of new inventory. In Los Angeles, 2.2 million square feet of industrial space was added in the fourth quarter, around 0.2 percent of the region’s total inventory. In Orange County, 108,000 square feet was delivered, or 0.04 percent of total space — a veritable rounding error.
The Inland Empire saw the most new buildings come to market, with 4.6 million square feet added in the fourth quarter, around 0.7 percent of total inventory.
With little distribution space coming to market each quarter, firms have turned to pre-leasing and built-to-suit deals to secure modern space as it’s delivered.
In the fourth quarter in Los Angeles, Amazon signed a built-to-suit deal for a 319,500-square-foot facility in Santa Clarita — the biggest deal of the quarter. In 2020, the firm previously signed a deal for around 97,000 square feet at the property, dubbed Center at Needham Ranch.
The second largest deal of the quarter was a pre-lease: Danish transportation and logistics firm DSV-Panalpina snagged a 295,000-square-foot facility at 19901 Western Avenue in Torrance.
Much bigger deals were signed in the Inland Empire this year, where larger distribution facilities can be built. Target signed a 2.2 million-square-foot lease in Riverside in a build-to-suit deal. In two other pre-lease deals, Chinese e-commerce firm Loctek locked up 1.2 million square feet in Perris, while Bed Bath and Beyond leased a 1 million-square-foot property in the Jurupa Valley.
Amazon and DSV-Panalpina’s leases stem from the boom in e-commerce, as people shifted to buying goods online during the pandemic. Internet sales increased 53 percent in the first nine months of 2021 from the same period in 2020.
Developers are racing to take advantage of demand for space, causing land prices to skyrocket over the last year. In Los Angeles, an infill market where vacant industrial land barely exists, the cost of land under industrial property has risen 94 percent over the last year to $165 per square foot, on average.
Tenants are paying the price too, with average asking rents increasing across the board. Average asking rents in Los Angeles hit $1.09 per square foot per month in the fourth quarter, compared to 90 cents in the fourth quarter of 2020.
The average rent in the Inland Empire is approaching $1 per square foot per month. It rose to 92 cents in the fourth quarter from 71 cents a year ago.
A previous story stated Amazon’s deal at Center at Needham Ranch in Santa Clarita was a pre-lease. It was a built-to-suit arrangement, not a pre-lease.