The light blue line shows vacancy rate, while the dark blue illustrates rents.

LOS ANGELES—The industrial vacancy rate in the South Bay has officially fallen to 1%, according to a new industrial report from Collier's International that GlobeSt.com has obtained exclusively. The South Bay closed the fourth quarter of 2016 with 1.4 million square feet of absorption, the most absorption since 2004 and 60% of the total absorption gains in 2016. The low vacancy rate is causing concern for tenants, but Chuck Littell, VP at Colliers International, says that the low vacancy doesn't mean a lack of availability.

“There is availability,” Littell tells GlobeSt.com. “If I have a tenant that is interested in the South Bay, I can find properties on the market. They just aren't vacant. There are very few properties on the market that are vacant, meaning my client could move into them tomorrow if they wanted. It also makes some business planning challenging for our clients because they have fewer options. They have to live with what is there.”

This isn't to say securing a space will be easy. Littell adds, “There are cases where a property comes on the market and the tenant currently occupying the property ends up staying.” He also agrees that there is a real dearth of supply, and for tenants that can be a dire situation. For landlords, however, the imbalance is “phenomenal.”

While Littell says that ecommerce is fueling the high demand, rising rental rates in other submarkets may also be pushing tenants to look for space in the South Bay. “The South Bay has typically been the most expensive submarket in greater L.A.,” Littell tells GlobeSt.com. “I think everyone has been hanging their hats on our rents, so the delta between the Inland Empire and the South Bay is 25% or 20% differential, and it used to be 50% of less. We are going up, and they are just coming right with us, and they are growing at a greater rate.”

Rents are rising in other submarkets due to equally high demand and tightening supply, but Littell says that rents have not gotten out of control or pushed tenants out of the South Bay. “The logical result of this low vacancy is rising rates; it is almost as if every deal sets a new watermark,” he explains. “There is a continuous upward trend on rents. Rent is about 4.3% of cost within the supply change, so it is still not a big part within the supply chain when you factor in inventory costs, transportation costs and carry costs. People aren't moving out of the South Bay because the rents are too high.”

Instant Insights /

Industrial Tenants Can Still Find Space in the South Bay

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