OC Industrial Rents Outpace L.A.

The Orange County market has the highest industrial rents in the Southern California market. According to research from NAI Capital, Orange County industrial rents are $0.88, slightly higher than the rents in Los Angeles. Although Orange County has higher rents, Los Angeles is seeing the most rent growth. The same report shows that Los Angeles rents grew 7.3% last year, while Orange County industrial rents are up 6%.

“Over the last four or five years, the industrial asking rates have been higher in Orange County,” Chris Jackson, executive managing director at NAI Capital, tells GlobeSt.com. “There has been a lot more tech-type companies moving into the market and using industrial-flex space with more office requirements. There are also smaller industrial sizes in Orange County, compared to Los Angeles. Smaller units translates to a higher cost per square foot.”

Ecommerce and warehouse users have been a major driver of demand and, in turn, rent growth throughout Southern California, but entertainment studios and aerospace users have also played an integral role in the market growth. “Those three industries have helped to drive up rates,” says Jackson. “That is especially true in L.A. County, which was behind in rates, even as sales prices continue to rise. Over the last four-to-five years, the rates have jumped because of those companies.”

Industrial rents have grown significantly this cycle throughout the Southern California market. The Inland Empire has been the biggest beneficiary of the industrial demand. In 2018 alone, rents in the submarket increased 21.1%. In Southern California overall, industrial rents were up 11.8% in 2018, and in the first month of 2019, rents have continued to climb. “We were predicting that rents would level out this year, but in the first part of the year, we have seen substantial activity,” says Jackson. “Big box industrial, especially north or Los Angeles has been very active. We have seen sale activity hit an all-time high, and interest rates went up. Leasing activity started to slow in the fourth quarter, so we thought companies were looking to consolidate. We thought rates would level out as a result. If that does happen now, it won’t be until the third or fourth quarter of the year.”

Jackson expects the first half of the year to remain strong, based on the leasing activity in January. “There are a lot of fulfillment users that are looking to grow the distribution in the L.A. area, and I think that will happen in the first half of the year,” he says. “There is about 400,000 square feet of activity in the San Fernando Valley that is getting signed right now, and rents have continued to push higher. I think that they will continue to grow through the first half of the year.”