Industrial vacancies across Los Angeles County are on the rise.
The vacancy rate for industrial properties in the county rose to 3.8 percent this month, up from 2.3 percent the previous year and 1.7 percent in 2021, the Los Angeles Business Journal reported.
Potential causes include declining port volume, higher interest rates, higher rents and moves by some companies to the Inland Empire and beyond. Experts and owners predict this year will be slow, with a slight rebound next year.
Steve Bohannon of Cushman & Wakefield said sales and leasing were well off their normal pace.
“Activity has slowed,” he told the Business Journal. “And the sale market and investment arena has slowed down rather dramatically.”
The slowdown at local ports has impacted the industrial market. Traffic at the ports of Long Beach and Los Angeles have dropped as much as 22 percent. When labor contract disputes shut down terminals this month, cargo shifted to other ports.
The slowdown at the ports and high prices of nearby properties have led some tenants to consider sites outside Los Angeles — some as far away as the Central Valley, Las Vegas or Phoenix.
Asking rents for industrial properties in Los Angeles are $1.87 per square foot, up from $1.73 last year and $1.22 in 2021, according to figures from Avison Young. In the Inland Empire, rents are $1.25 per square foot.
Experts agree that some tenants are looking at the Inland Empire not for the price discount, but because there are bigger warehouses than in L.A. Others stay and look for smaller buildings.
“In the infill Los Angeles area, there aren’t many facilities over a half million feet available,” Rob Antrobius, who oversees L.A. and Orange counties for San Francisco-based Prologis, told the Business Journal. “We see companies that need more than half a million square feet migrate to the Inland Empire because they have more choices.
“And we are seeing some companies start to look at Phoenix, Las Vegas and Texas.”
Some firms, which leased more space than they needed during the pandemic, have put those properties up for sublease.
This year, 6.6 million square feet of industrial buildings are up for sublease, an increase of nearly 70 percent from the total amount seen in the market last year, which was up nearly 64 percent from 2021, according to Avison Young.
The sublease listings compete for space directly leased by landlords.
Industrial sales have plunged. As of June 1, 22 industrial properties had sold in Los Angeles, with 53 sales on pace for this year. Last year, 139 industrial properties sold in L.A. , and 145 were sold in 2021, according to Avison Young.
The culprit, experts say: higher interest rates, with refinancing difficult and debt service doubling for some firms. Despite fewer sales, the average price per square foot this year was $411, up from $291 last year and $241 in 2021.
— Dana Bartholomew
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