Industrial Gross Activity Falls in 3Q

LOS ANGELES—Industrial gross activity fell in the third quarter 2016, but the quarter still showed a strong year-over-year performance, according to third-quarter analysis from CBRE. The decreases in gains was likely a function of lack of available supply rather than diminished tenant demand, says Jamil Harkness, senior industrial analyst at CBRE, who added that the submarket activity fluctuates quarter-to-quarter as a result of the available supply. Increased transit-oriented development as well as ecommerce also helped to fuel market demand in the quarter and will likely keep the industrial market healthy and active through 2017. For more on this, we sat down with Harkness for an in-depth look at the Los Angeles industrial market.

GlobeSt.com: What is your impression of the industrial performance in the third quarter?

Jamil Harkness: Given the continued limited supply in Greater Los Angeles, the third-quarter performance remained strong despite quarter-over-quarter and year-over-year declines. The drop in gross activity and occupancy gains is more a function of a lack of available supply and not diminished tenant demand. Submarket activity levels fluctuate quarter to quarter in response to the amount of available supply in this tight market.

GlobeSt.com: Ecommerce has been a major driver of the industrial market. How has that trend impacted infill markets like Los Angeles?

Harkness: The Greater L.A. and OC region is very much an infill market and draws strong demand from the e-commerce sector accounting for 18% of the total gross activity. Over the past few years, e-commerce related deals have increased incrementally. Both 3PLs and e-commerce companies require warehouse space within close proximity to densely populated areas outside of core districts.

GlobeSt.com: How has the recent focus on “the last mile” and TOD projects increased demand for quality distribution space in the Central Los Angeles infill market?

Harkness: The focus on the last mile has been mainly driven by consumers demand to receive ordered products faster.  As a result, many 3PLs and e-commerce companies are utilizing these facilities as pass-through warehouses to aid in faster delivery. To meet demand, several e-commerce businesses have leased smaller industrial buildings in Central Los Angeles and other similar submarkets. The shift to the “last mile” has also prompted package delivery companies and other 3PLs to expand due to the growing popularity of online shopping.

GlobeSt.com: The vacancy rate continues to be at historical lows. Has the dearth of supply caused any leasing issues or restricted industrial growth?

Harkness: The lack of supply to some degree has impeded industrial growth. Many tenants must be in the L.A. market due to infrastructure, supply chain advantages, and port proximity, but vacancy remains extremely tight at 1% as of the third quarter, and in most submarkets there were declines in year-over-year gross activity. Activity levels in San Fernando Valley and Ventura, however, increased due to more available supply and urged tenants to migrate from the L.A. Basin core to these submarkets.

GlobeSt.com: The dearth of supply has also led to significant rent growth. Do you expect rents to continue to rise through 2017 and how has this rent growth changed the tenant mix in Los Angeles?

Harkness: Due to the lack of supply, rent growth in the Greater Los Angeles area is expected to continue in 2017, but the growth will be slower than 2016 as new completions outpace net absorption. Rental growth has done little to alter the tenant mix in Los Angeles, as the climb in rates is simply a supply and demand disparity. Due to the impact of e-commerce movement and its derived demand 3PLs, however, packaging delivery companies and e-commerce users are paying higher rental rates than before.

LOS ANGELES—Industrial gross activity fell in the third quarter 2016, but the quarter still showed a strong year-over-year performance, according to third-quarter analysis from CBRE. The decreases in gains was likely a function of lack of available supply rather than diminished tenant demand, says Jamil Harkness, senior industrial analyst at CBRE, who added that the submarket activity fluctuates quarter-to-quarter as a result of the available supply. Increased transit-oriented development as well as ecommerce also helped to fuel market demand in the quarter and will likely keep the industrial market healthy and active through 2017. For more on this, we sat down with Harkness for an in-depth look at the Los Angeles industrial market.

GlobeSt.com: What is your impression of the industrial performance in the third quarter?

Jamil Harkness: Given the continued limited supply in Greater Los Angeles, the third-quarter performance remained strong despite quarter-over-quarter and year-over-year declines. The drop in gross activity and occupancy gains is more a function of a lack of available supply and not diminished tenant demand. Submarket activity levels fluctuate quarter to quarter in response to the amount of available supply in this tight market.

GlobeSt.com: Ecommerce has been a major driver of the industrial market. How has that trend impacted infill markets like Los Angeles?

Harkness: The Greater L.A. and OC region is very much an infill market and draws strong demand from the e-commerce sector accounting for 18% of the total gross activity. Over the past few years, e-commerce related deals have increased incrementally. Both 3PLs and e-commerce companies require warehouse space within close proximity to densely populated areas outside of core districts.

GlobeSt.com: How has the recent focus on “the last mile” and TOD projects increased demand for quality distribution space in the Central Los Angeles infill market?

Harkness: The focus on the last mile has been mainly driven by consumers demand to receive ordered products faster.  As a result, many 3PLs and e-commerce companies are utilizing these facilities as pass-through warehouses to aid in faster delivery. To meet demand, several e-commerce businesses have leased smaller industrial buildings in Central Los Angeles and other similar submarkets. The shift to the “last mile” has also prompted package delivery companies and other 3PLs to expand due to the growing popularity of online shopping.

GlobeSt.com: The vacancy rate continues to be at historical lows. Has the dearth of supply caused any leasing issues or restricted industrial growth?

Harkness: The lack of supply to some degree has impeded industrial growth. Many tenants must be in the L.A. market due to infrastructure, supply chain advantages, and port proximity, but vacancy remains extremely tight at 1% as of the third quarter, and in most submarkets there were declines in year-over-year gross activity. Activity levels in San Fernando Valley and Ventura, however, increased due to more available supply and urged tenants to migrate from the L.A. Basin core to these submarkets.

GlobeSt.com: The dearth of supply has also led to significant rent growth. Do you expect rents to continue to rise through 2017 and how has this rent growth changed the tenant mix in Los Angeles?

Harkness: Due to the lack of supply, rent growth in the Greater Los Angeles area is expected to continue in 2017, but the growth will be slower than 2016 as new completions outpace net absorption. Rental growth has done little to alter the tenant mix in Los Angeles, as the climb in rates is simply a supply and demand disparity. Due to the impact of e-commerce movement and its derived demand 3PLs, however, packaging delivery companies and e-commerce users are paying higher rental rates than before.