Why Isn’t There More Industrial Redevelopment?

Industrial redevelopment is more expensive than new construction, but it is essential to bringing more quality class-A product to the market. This is especially true in Los Angeles and submarkets like the San Gabriel Valley, where there is a large stock of class-B or class-C industrial product and growing demand for higher-end space. In general, almost all of the new supply in the last decade to come to the L.A. market has been new construction.

“Redevelopment will be vital to bringing class-A facilities to the San Gabriel Valley where the bulk of the inventory is currently class-B space,” Eric Chou, VP at JLL, tells GlobeSt.com. “The cost of redevelopment is generally much more expensive than new construction as there are costs associated with building demolition, potential zoning changes, environmental cleanup and permitting and entitlement, just to name a few.”

Mid-sized buildings averaging 50,000 square feet are in the highest demand. Recently, developers have been building larger footprints for ecommerce and logistics users. “From the mom-and-pop perspective, smaller-box industrial facilities will always be popular in the San Gabriel Valley,” explains Chou. “The mom-and-pop import/export businesses, which make up the bulk of the occupiers in the San Gabriel Valley are not going away anytime soon or actually ever. For these small occupiers, it is not worth it to migrate eastward despite the lower building operating expenses and the lower numbers on a lease/purchase. Most of these small occupiers choose the San Gabriel Valley because it is close to their personal residences, around the retail amenities that they prefer, and a short commute for most of their employees.”