Expiring Leases Will Fuel Industrial Activity Through 2021

Expiring industrial leases in Los Angeles will ensure strong leasing activity through 2021. According to research from JLL, nearly 300 industrial leases of 50,000 square feet or greater will expire over the next two years. In total, these leases account for 34 million square feet of leasing activity. This will leave many tenants searching for space in a market plagued by a shortage of supply.

“Whenever there is an expiring lease a series of events are triggered,” Paul Sablock, managing director at JLL, tells GlobeSt.com. “The tenant whose lease is expiring can attempt to renew on their space with their current landlord or they can go into the market for another location, be it smaller or larger. The possibility of a previously lease spaced coming onto the market, should the tenant opt to move, spurs activity and the movement of the tenant spurs on activity as the tenant searches for new space.”

There is currently a total of 6 million square feet of industrial product under construction, and with hundreds of leases scheduled to expire in the next two years along with new tenants in the market, industrial supply in Los Angeles will continue to tighten. “Until such time as the market grows square footage with new construction the constrained market will continue to push pricing for all classes of product based on simple supply-and-demand dynamics,” says Sablock.

As a result, tenants will face challenges securing new space. According to the report, tenants with expiring leases have begin looking for space or beginning landlord discussions 12 to 18 months in advance. Sablock recommends tenants identify their facility needs and plans. “If you know that your intention is to stay at your current location for a period beyond the term of your existing lease start the renewal discussion and process.,” he says. “If you think you will be moving, be it smaller or larger, start to look out to future availabilities that might suit your eventual needs.”

Beyond 2021, it is difficult to predict industrial leasing activity and the economic climate.  For now, demand is outpacing supply, and there is no reason to believe that dynamic will change. “There is new construction taking place in the market that is due to hit the market late 2019 and onward,” adds Sablock. “Until such time as the market square footage exceeds the demand, I do not see a stalling in the marketplace.  Should there be a “shocking event” in the economy there could be another storyline.”