Industrial Rents, Investment Volume Continues to Climb

LOS ANGELES—Experts are calling full steam ahead for the industrial market in 2017. Demand from ecommerce and third-party logistics companies will drive demand in infill markets, and as a result, experts are expecting increased rents and investment volume in both Los Angeles and Orange County. We sat down with CBRE VP Robert Flores to hear more about the expectations for the industrial market next year. Here, he tells us how ecommerce is driving demand in infill markets and why the lack of supply could also inhibit growth while driving rents and investment volume.

GlobeSt.com: How are ecommerce and third-party logistics driving activity in infill and urban markets? 

Robert Flores: Ecommerce users and last-mile delivery companies are realizing that they need to be as close to the population base as possible.  The goal is to be able to serve as many people as possible in as short amount of time as possible.  We are becoming a rather impatient society and industrial users are adapting by offering expedited delivery services, which require them to focus more on location and slightly less on functionality.

GlobeSt.com: Is there concern that the lack of available space will hamper growth? 

Flores: The lack of available space is a big concern for industrial users.  Many users are either opting to renew leases at existing buildings and/or outsource new business to 3PLs and 4PLs.  The lack of available opportunities for expansion has created new challenges for users and is forcing them to explore alternative markets or operating out of multiple facilities – neither of which is ideal but absolutely necessary if there's a need to expand.

GlobeSt.com: What rental rate increase are you expecting in 2017? How much more can rents increase; is it infinite? 

Flores: Landlords are bullish and market dynamics are ripe for rents to continue to climb.  Demand is still outpacing supply, port activity continues to be robust and there's a very limited amount of land for new development.  I don't think anyone knows exactly how much rents will climb but it's safe to assume there will be healthy rent growth  in 2017.

GlobeSt.com: How has investment activity increased in these markets, and how has this affected pricing? 

Flores: Investment activity hasn't necessarily increased in the infill markets.  There are a fewer number of opportunities for sale and the high-quality projects with credit tenants that do come available for sale are seeing record sale prices and cap rates.

GlobeSt.com: How do the L.A. market and OC market compare? 

Flores: The LA and Orange County industrial markets are two of the strongest industrial markets in the United States.  The differentiator tends to be the tenant mix.  A large percentage of users in the LA Market have a business with a port-related use – importers, exporters, logistics companies and transportation users.  The Orange County market has some of the same users, but also  a healthy mix of R&D, manufacturing and tech tenants.  These particular user groups occupy more flex-type industrial buildings that command higher rental rates.

LOS ANGELES—Experts are calling full steam ahead for the industrial market in 2017. Demand from ecommerce and third-party logistics companies will drive demand in infill markets, and as a result, experts are expecting increased rents and investment volume in both Los Angeles and Orange County. We sat down with CBRE VP Robert Flores to hear more about the expectations for the industrial market next year. Here, he tells us how ecommerce is driving demand in infill markets and why the lack of supply could also inhibit growth while driving rents and investment volume.

GlobeSt.com: How are ecommerce and third-party logistics driving activity in infill and urban markets? 

Robert Flores: Ecommerce users and last-mile delivery companies are realizing that they need to be as close to the population base as possible.  The goal is to be able to serve as many people as possible in as short amount of time as possible.  We are becoming a rather impatient society and industrial users are adapting by offering expedited delivery services, which require them to focus more on location and slightly less on functionality.

GlobeSt.com: Is there concern that the lack of available space will hamper growth? 

Flores: The lack of available space is a big concern for industrial users.  Many users are either opting to renew leases at existing buildings and/or outsource new business to 3PLs and 4PLs.  The lack of available opportunities for expansion has created new challenges for users and is forcing them to explore alternative markets or operating out of multiple facilities – neither of which is ideal but absolutely necessary if there's a need to expand.

GlobeSt.com: What rental rate increase are you expecting in 2017? How much more can rents increase; is it infinite? 

Flores: Landlords are bullish and market dynamics are ripe for rents to continue to climb.  Demand is still outpacing supply, port activity continues to be robust and there's a very limited amount of land for new development.  I don't think anyone knows exactly how much rents will climb but it's safe to assume there will be healthy rent growth  in 2017.

GlobeSt.com: How has investment activity increased in these markets, and how has this affected pricing? 

Flores: Investment activity hasn't necessarily increased in the infill markets.  There are a fewer number of opportunities for sale and the high-quality projects with credit tenants that do come available for sale are seeing record sale prices and cap rates.

GlobeSt.com: How do the L.A. market and OC market compare? 

Flores: The LA and Orange County industrial markets are two of the strongest industrial markets in the United States.  The differentiator tends to be the tenant mix.  A large percentage of users in the LA Market have a business with a port-related use – importers, exporters, logistics companies and transportation users.  The Orange County market has some of the same users, but also  a healthy mix of R&D, manufacturing and tech tenants.  These particular user groups occupy more flex-type industrial buildings that command higher rental rates.