Industrial Lease Rates Expected to Grow 7.3%

Industrial lease rates in Los Angeles will likely grow by more than 7% this year. According to the second quarter report from CBRE, industrial lease rates increased by 3.8% in the last quarter and will likely close the year up 7.3%. It’s now surprise that limited supply is behind the rapidly rising lease rates. The same report shows vacancy is now at 1.2% market wide and drops lower in some popular submarkets. Vacancy is down 20 basis points, which is nominal but expected considering the limited availability, with positive absorption of 707,569 square feet.

“The main factor here and the obvious factor is supply and demand. We have such a lack of available product, especially class-A product,” John Hillman, VP at CBRE who specializes in the Central L.A. industrial market, tells GlobeSt.com. “A lot of the available properties are functionally obsolete. With a lack of supply, you are going to have an increase in rental rates. With the increasing rental rates, there is strong competition for space, but the renewal rates also play a factor. Landlords are in a strong position because they can really set the price and negotiating on lease renewals. Landlords have had the ability to really push renewal lease rates.”

The demand is unyielding, with 3PLs and ecommerce users driving a large portion of the transaction activity. However, the dearth of supply could begin to slow the leasing activity. If there is nothing to lease, transaction volumes will inevitably fall. “The only thing that will slow vacancy rates down is the lack of supply,” says Hillman. “There is a ton of pent up demand, and when buildings do come to market, there is no lack of interest or absorption.”