The industrial market is thriving in Los Angeles, and in many ways, the market is outpacing the former peak. A recent study from CBRE compared 2005-2007 to 2014-2016 and found that vacancy rate, absorption, rental growth and completions are either exceeding or near the former peak, with the exception of construction, which has been kept in check. The drivers of this market, on the other hand, are totally different. This cycle, industrial activity is driven by last-mile and logistics users. To find out more, we sat down with Petra Durnin, director of research and analysis at CBRE.

GlobeSt.com: How does this industrial market from the prior peak compare to the market today?

Petra Durnin: The industrial market today has been developing in a way it hasn't for quite some time. Though market fundamentals have been strong in both cycles, this current peak is driven largely by fulfillment and last-mile needs. While vacancy and absorption are on par with the last peak, construction is lower and that has helped drive higher rent growth compared with the last peak.

GlobeSt.com: Based on this comparison, do you consider this a market peak?

Durnin: An increasing part of the industrial market is evolving in concert with the retail market, and the demands of e-commerce are developing at a very fast pace and show no signs of slowing. So, as industrial and retail products meet those changing needs, the demand will continue.

GlobeSt.com: Development has been kept in check this cycle. Why do you think that there has been such restraint despite the high demand for industrial product?

Durnin: There is huge demand for big box but the scarcity of land and significant infrastructure costs affect construction of large-scale industrial sites. Smaller infill product demand also increased with e-commerce growth but it faces the same challenges.

GlobeSt.com: With the growth of ecommerce, are the drivers for industrial different in this cycle than the last peak?

Durnin: During the previous peak the focus was still largely on warehousing demands and the life cycle of port traffic to store distribution. This cycle is more nuanced and focused on getting goods to consumers directly, quickly and efficiently.

GlobeSt.com: In analyzing the two cycles, are there any glaring concerns this round that could lead to another major disruption?

Durnin: While a decrease in consumer spending would logically affect e-commerce growth, it still has a relatively small footprint in a very big retail market. E-commerce makes up less than 10% of retail sales and occupies just a fraction of the industrial product tenant base, according to our CBRE research. E-commerce has plenty of room to grow and the strength of the industrial market is multi-faceted and a constant, so it's unlikely that there will be a major disruption.

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Industrial Drivers Are Totally Different This Cycle

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