The L.A. Industrial Market Has Exploded Since 2010
Los Angeles’ tight and fiercely popular industrial market as erupted in the last decade.
Today, Los Angeles is known as one of the tightest and most popular industrial markets in the country. However, the market as we know it today has largely emerged in the last decade, since 2010. According to a new research snapshot from JLL shows the differences in the market between 2010 and 2019. In 2010, the Los Angeles industrial market had a 7% vacancy rate, compared to 2% today. Rents have increased 67%, while sales prices have increased more than 200%.
“The tremendous growth of e-commerce has been a major driver of industrial markets everywhere this decade,” Paul Sablock, managing director at JLL, tells GlobeSt.com. “In Southern California, you’ve got a population of over 21 million people, second only to the New York tri state region. This is a tremendous consumer base, and as buying preferences have continued to shift further to the online realm, retailers have shifted distribution strategies to meet demand. This means more reliance on distribution space rather than brick and mortar retail space.”
The population and the shift to online shopping has been a winning combination for industrial assets, and has driven the majority of the activity in the market. “The city is where the highest concentration of e-commerce consumers live, driving the need to be in infill locations to serve this customer,” says Sablock. “In addition to smaller distribution facilities servicing the “Last Mile”, these last mile distribution points need to be serviced by larger facilities, 1 million-square-foot-plus, thus the Inland Empire has exploded as well.”
Asking rents now average $0.90 per square foot and free months are down 31% compare to 2010. Sales prices have climbed to $182 per square foot as well. Lease terms, on the other hand are an average of 57 months, up 14% compared to 2010. “Lease rates have risen dramatically but there have been nuanced changes,” says Sablock. Three-to-five year terms with options, while still prevalent, have changed and Landlords are looking to lock in longer terms with fixed increases so as to take advantage of the increased rental rates. Some Landlords are now pushing 3.5% annual increases as opposed to the typical 3% annual. Free rent has fluctuated across the decade. It is now being used to prop up underlying lease rates as front loaded free rent is built into the effective rent structure.”