Industrial Prices Hit Record Levels, Again

Industrial prices in Southern California are at an all-time high—again. Prices have been trending upward since 2011, with numbers repeatedly breaking records. According to new research from JLL, single-building industrial properties are now trading hands for an average of $235.34 per square foot. Los Angeles industrial product is trading at the highest price points, followed by Orange County. All four of the major Southern California markets—Los Angeles, Orange County, San Diego and Inland Empire—are trading above or on par with average national industrial pricing.

Although this has been a steady pricing increases for industrial product, there is no ceiling ahead. “There is no end in sight to L.A. industrial pricing,” Bo Mills, managing director at JLL Capital Markets, tells GlobeSt.com. “Land and construction pricing continue to climb at rates that have never been seen. With multi-story industrial buildings under construction in the Northeast and Northwest areas of the United States it is just a matter of time before they come to L.A. The infill multi-story buildings will command rents and ultimately sales pricing that is three times what current industrial buildings are leasing and selling for.  The multi-story industrial building comps will reset traditional thinking on industrial pricing.”

Interest from a diverse pool of capital has helped to drive pricing upward. Institutional capital, in particular, has targeted industrial product and looked to increase exposure to the asset class this cycle. “There is insatiable demand for L.A. industrial from REITS, pension fund advisors, and international capital,” says Mills “New functional distribution space remains the most in demand, followed by class-B industrial product with below market rents.”

While Mills expects industrial investment activity to continue to grow through 2019, there are some concerns on the horizon, specifically rising interest rates. However, industrial rents are growing at a faster pace than interest rates, and should offset the higher cost of capital. “Rising interest rates are something everyone is watching,” he says. “However lease rates are growing faster than interest rates, which will keep cap rates low for the foreseeable future.”

Los Angeles prices are currently 70% above the national average, with Orange County, and prices have increased 63.1% in the last five years. The Inland Empire has lead pricing appreciation, however, with prices 91.6% higher than they were five years ago. Mills expects Los Angeles to continue to lead the nation next year, and strong activity throughout the Southern California region. “As we push later into this economic cycle many buyers like the safety and limited volatility of the Los Angeles markets,” he says. “L.A. will continue to be the most sought after industrial market in the country with unlimited capital chasing very few opportunities.”