65M SF of Industrial Leases Will Roll in Next 3 Years

A substantial number of industrial leases are scheduled to expire in the next three years in the Los Angeles. According to new research from JLL, more than 65 million square feet of industrial leases will expire, giving some relief to the very tight industrial market. The South Bay market will see the most substantial number of expiring leases, and class-A and class-B space makes up the majority of the assets with leases expiring.

“This is the random nature of the business,” Barry Hill, EVP at JLL, tells GlobeSt.com. “There is no real science to it. I don’t think it is tied at all to economic cycles because lease terms can be three years, five years, 10 years, and all of those deals are rolling during this window. Those leases all started at different times but they are expiring at the same time. More importantly than why it is happening is to notice that it is happening and find ways to leverage it.”

Actually, these lease expirations will be healthy for the L.A. industrial market, which has suffered from a severe dearth of supply. “This is healthy for the market. We have been in a gridlock environment, hovering between 1% and 2% vacancy rate for the past four years,” says Hill. “Tenants that have had leases rolling would go out in to the market to find their perfect building and haven’t been able to find it. For tenants, this will provide more tenants with the opportunity to right size or grow their business.”

While this is good news for tenants, landlords and developers will also benefit from the trend. “This is a pretty interesting opportunity for tenants as well as landlords and developers,” explains Hill. “For landlords, the amount of leases rolling is an opportunity to increase more rents in a portfolio or expand existing customers within a portfolio. For developers, this is an opportunity to pull tenants in because more tenants are out looking in the market for space.”

The leasing activity may be good news, but mostly it is an opportunity for tenants to shuffle and shift around in the market. It won’t produce more supply, better vacancy or have an impact on rents. “This won’t have enough of an impact to stabilize or reduce rents. I think that we will continue to see rent growth and I think that most of these leases will turn into renewals as has been the case for the last six years,” says Hill. “The gridlock environment will get a little better, but we are still in a very tight market.”