LOS ANGELES—Industrial rents are continuing to climb to new heights, according to the latest industrial report from Colliers International. The extreme lack of supply doesn't seem to be slowing down the market, and rents are expected to continue to rise throughout the year and cap rates, to compress even lower. We sat down with market expert John DeGrinis, a senior EVP at Colliers, to find out how tenants are adjusting and where the concerns are in seems perfect.

GlobeSt.com: Is the dearth of industrial supply inhibiting growth?

John DeGrinis: That is the question that the users are asking. The users of this world are healthy and optimistic, but their biggest challenge is facility space. For a lease that a tenant signed five years ago, if you were renewing today, you are looking at a minimum 25% increase to your rent. In a market where you don't have a lot of alternatives, the landlord has all of the power right now and users are frustrated. This is a big issue because users are trying to figure out how to accommodate their growth. The areas like Inland Empire East, Tejon and Santa Clarita are going to benefit from the lack of supply.

GlobeSt.com: How are tenants evolving to the market?

DeGrinis: We have seen users do things that they don't normally do. One is early renewal. Some users have enough foresight to say that it is to their advantage to renew early. The norm however is that it is a surprise every time. I think what is changing is that there is so little inventory that people are realizing that they need to be on top of their real estate.

GlobeSt.com: How has development kept pace with demand in your market?

DeGrinis: It is purely a function of available land, and there are few land parcels that aren't built on. There is a Sun Valley project that is being built on a site that was considered unbuildable. However, because of the extreme lack of inventory and the demand, it made sense and it could pencil. The fact that we are building on land that was once considered unbuildable shows how acute this problem of available land has become. If we had more land, it would be built on. There is tremendous interest from developers and they have the capital. Land values throughout the L.A. region is approaching $60 per square foot.

GlobeSt.com: What is your investment outlook for the market?

DeGrinis: There are high land value, high construction cost, challenges from cities, your risk is higher and there isn't a lot of room for error. There is so much money chasing so few investments. The most recent transactions in our market were in the high 4s, and the lowest cap rates in our market are mid 4s, so we are right there. I think you are going to see more cap rate compression as we go forward.

GlobeSt.com: Is the dearth of industrial supply inhibiting growth?

GlobeSt.com: How are tenants evolving to the market?

GlobeSt.com: How has development kept pace with demand in your market?

GlobeSt.com: What is your investment outlook for the market?

Instant Insights /

Industrial Rents Hit Record Highs, and Rising

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