Southern California’s industrial markets are arguably the envy of the rest of the nation. The region benefits from proximity to the busiest ports in the country, decades of infrastructure spending and a massive consumer base in its backyard.
Southern California’s industrial markets are arguably the envy of the rest of the nation. The region benefits from proximity to the busiest ports in the country, decades of infrastructure spending and a massive consumer base in its backyard. Add in the continuing shift to ecommerce, and it is not surprising to find historically low vacancy rates and tight conditions across the industrial sector, according to the latest market reports from Xceligent.
One of the advantages of membership in AIR CRE is gaining access to the latest market information, before it is widely available. We’ll take an advanced peek at the 2Q 2017 market updates for Los Angeles, Inland Empire, Orange County and Ventura County.
Los Angeles Industrial Market Overview
Los Angeles County recorded 755,210 square feet of positive net absorption during 2Q 2017, with the total industrial vacancy rate increasing from 1.1% in 1Q 2017 to 1.2% at the close of 2Q 2017. Total availability remained flat at 3.3% during the same time period, while the weighted average asking rents decreased from $0.83 NNN to $0.79 NNN, mainly because the majority of larger availabilities are advertised without an asking rate. Industrial development activity continues to thrive, with 7.9 million square feet under construction across L.A. County.
Los Angeles Industrial Market Recap
• Inventory: 761,886,350 square feet 18,400 buildings
• Quarterly absorption: 755,210 square feet
• Total available rate: 3.3%
• Total vacancy rate: 1.2%
• Under construction: 7,983,302 square feet
• Delivered: 1,341,970 square feet
• Weighted average asking rate: $0.79 NNN
Despite the slight uptick in the vacancy rate, the Los Angeles County industrial market remains the tightest in the country, with historically low vacancy rates in all of its five submarkets. Leasing activity declined from the previous quarter, even with the availability rate remaining flat. Perhaps the hottest submarket was the LA South (South Bay), which recorded 836,339 square feet of positive net absorption, dropping the submarket’s vacancy rate to 0.8%, the lowest in the country. Landlords continue to be the beneficiary of the tight market conditions, as tenants are hard-pressed to find expansion options in their current markets. The largest move-in during the quarter went to Best Buy, taking occupancy of the remaining 479,310 square feet at the newly developed Brickyard in Compton.
Q2 2017 leasing activity in L.A. County declined from Q1 2017, which was the high quarter over the past five quarters. That deal volume drop was particularly noticeable in the smaller sized transactions under 2,500 square feet. Sales volume and average price-per-square-foot continued to drop. One of the most active buyers was LBA Realty, with two deals totaling more than $75 million involving Lincoln Industrial Center II and 4440 E. 26th St.
Inland Empire Industrial Market Overview
The Inland Empire industrial market recorded nearly 4.2 million square feet of positive net absorption during 2Q 2017, a massive jump up from the 2.3 million square feet recorded during 1Q 2017. The total vacancy rate decreased from 3.9% in 1Q 2017 to 3.6% at the close of 2Q 2017, while the total availability rate decreased from 6% to 5.4% during the same period. Weighted average asking rates decreased $0.04 NNN over the second quarter, with the majority of newer buildings being marketed without an asking rate. Construction activity increased by four million square feet from 1Q 2017, mostly due to the heavy rainfall Southern California received in the early months of 2017, setting many projects back 3 to 6 months.
Inland Empire Industrial Market Recap
• Inventory: 509,079,471 square feet contained in 6,303 buildings
• Quarterly absorption: 4,174,068
• Total availability rate: 5.4%
• Total vacancy rate: 3.6%
• Under construction: 27,667,766 square feet
• Delivered: 3,044,925 square feet
• Weighted average asking rate: $0.48 NNN
Market Highlights
The Inland Empire remains one of the hottest industrial markets in the country, with another quarter of net absorption in the millions and 27 million square feet currently under construction. Three million square feet was delivered in 2Q 2017, and another 12 million square feet is expected to deliver in 3Q 2017. The Inland Empire West submarket recorded the majority of the net absorption with 2.3 million square feet, lowering the vacancy rate to 1.9%. As the coastal markets continue to struggle with a lack of Class A inventory and ecommerce demand continues to grow, tenants will continue to look toward the Inland Empire for brand new state-of-the-art distribution facilities.
Orange County Industrial Market Overview
The Orange County industrial market recorded 173,922 square feet of negative net absorption during 2Q 2017, the second consecutive quarter of negative numbers. The total vacancy rate inched up from 1.6% in 1Q 2017 to 1.7% at the close of 2Q 2017. Total availability rate decreased from 4% to 3.9% over the same time period. Weighted average asking rates increased $0.01, closing out the quarter at $0.95 NNN.
Orange County Industrial Market Recap
• Total inventory: 249,792,617 square feet in 7,377 buildings
• Quarterly absorption: negative 173,922 square feet, slightly improving from the previous quarter, though down significantly from 4Q 2017
• Total available rate: 3.9%
• Total vacancy rate: 1.7%
• Under construction: 387,835 square feet
• Delivered: 50,000 square feet
• Weighted average asking rate: $0.95 NNN
Market Highlights
Despite a second consecutive quarter with negative net absorption, Orange County continues to see strong industrial demand, with very few options for expansion. With limited new construction and most redevelopment options moving towards residential or creative office conversions, expect future net absorption to remain flat. With a vacancy rate of 1.7% and average asking rents at $0.95 NNN, Orange County still remains one of the tightest markets in the country.
Interestingly, OC North, the submarket with the largest amount of total inventory at 105,461,121 square feet, enjoys the lowest vacancy rate at 1.2%. The OC West submarket’s 40,272,439 square feet had the highest vacancy rate at 2.3%, a big jump from under 1% in 2Q 2016.
Ventura County Industrial Market Overview
The Ventura County industrial market recorded 117,657 square feet of positive net absorption during 2Q 2017, bringing year-to-date net absorption to 791,865 square feet. The total vacancy rate decreased from 2.8% in 1Q to 2.6% at the close of 2Q 2017, while the total availability rate decreased from 5.2% to 4.7% during the same period. Weighted average rent growth continued to climb, closing out the quarter at $0.78 NNN.
Ventura County Industrial Market Recap
• Inventory: 65,555,714 square feet in 1,814 buildings
• Quarterly absorption: 117,657 square feet
• Total available rate: 4.7%
• Total vacancy rate: 2.6%
• Under construction: 863,266 square feet
• Weighted average asking rate: $0.78 NNN
Market Highlights
Ventura County continues to see healthy activity, with strong net gains in occupancy and increasing asking rates. Construction activity continues to flourish with 863,266 square feet under development. The Oxnard/Port Hueneme submarket recorded the largest net change in occupancy with 97,754 square feet, lowering the submarket’s vacancy rate to 1.9%. With a shortage of modern industrial buildings, the county is expected to catch some overflow of tenants from the San Fernando Valley, due to the lack of expansion options throughout Greater Los Angeles.
The improving market fundamentals are exemplified in the vacancy rate dropping from the more than 4% in 2Q 2016 to under 3% 2Q 2017. Just about the only market of slight concern is Camarillo, which has a more than 5% vacancy rate, though even its direct vacancy rate for warehouse and distribution space has dropped from 8.8% in 2Q 2016 to 4.9% in 2Q 2017.
Leasing activity hit a five-quarter high in Ventura County, with the number of deals in the 2,500 square foot or less category experiencing nearly double the volume recorded in both 1Q 2017, as well as 4Q 2016.
Xceligent Q2 2017 Industrial Reports:
LOS ANGELES INLAND EMPIRE ORANGE COUNTY VENTURA
View Source: http://www.aircre.com/socal-industrial- … -114398941