Industrial Submarket Boundaries Are Blurring

LOS ANGELES—The boundary lines between industrial submarkets are starting to blur. The trend is an effect of the tightening Los Angeles and Southern California markets and the plummeting vacancy rate, which has fallen below zero in some submarkets, like the South Bay. Tenants are scrambling to get any available space possible, and are willing to look at alternative submarkets to find an appropriate space.

“The one thing that has really happened in the last three years is the boundary lines between submarkets have blurred,” Chuck Littell, VP at Colliers International, tells GlobeSt.com. “When I first started in the business, there were really strong lines between the different submarkets, and it was a big move, for example, for someone to go from Central L.A. to the South Bay or to move from the South Bay to Santa Fe Springs. That has gone by the wayside. As the world has gotten smaller, there has been a blending between submarkets, and people are considering areas that they didn't before. The walls are falling down between the submarkets.”

The blending is not only happening between submarkets but also within submarkets, with new types of industrial product built in unusual locations. “This is also happening within the submarket,” explains Littell. “The Brickyard is a really good example of that. Ten years ago, you would have had trouble getting someone to build that project, but today, if there is anything at all that can be built on, it is going to be built.”

Littell says that this blending has been “a benefit to other submarkets,” which have been able to attract higher rents as a result. In fact, Littell says that rental rates aren't even part of the discussion. “There are always multiple parties that need the space, and the rent really falls out of the conversation,” he says. “That is what is driving a lot of the vacancy.”

People are looking for space earlier and earlier to find a suitable match, and are willing to pay for it. As a result, Littell says that there is no lead-time in industrial, like there is for other asset classes. He also says that it depends what the company's need times are. If they don't have the luxury of time, they will take any available space in any Los Angeles submarket. “Areas that were considered 'ugly duckling' or not a core area are now in high demand,” says Littell.

LOS ANGELES—The boundary lines between industrial submarkets are starting to blur. The trend is an effect of the tightening Los Angeles and Southern California markets and the plummeting vacancy rate, which has fallen below zero in some submarkets, like the South Bay. Tenants are scrambling to get any available space possible, and are willing to look at alternative submarkets to find an appropriate space.

“The one thing that has really happened in the last three years is the boundary lines between submarkets have blurred,” Chuck Littell, VP at Colliers International, tells GlobeSt.com. “When I first started in the business, there were really strong lines between the different submarkets, and it was a big move, for example, for someone to go from Central L.A. to the South Bay or to move from the South Bay to Santa Fe Springs. That has gone by the wayside. As the world has gotten smaller, there has been a blending between submarkets, and people are considering areas that they didn't before. The walls are falling down between the submarkets.”

The blending is not only happening between submarkets but also within submarkets, with new types of industrial product built in unusual locations. “This is also happening within the submarket,” explains Littell. “The Brickyard is a really good example of that. Ten years ago, you would have had trouble getting someone to build that project, but today, if there is anything at all that can be built on, it is going to be built.”

Littell says that this blending has been “a benefit to other submarkets,” which have been able to attract higher rents as a result. In fact, Littell says that rental rates aren't even part of the discussion. “There are always multiple parties that need the space, and the rent really falls out of the conversation,” he says. “That is what is driving a lot of the vacancy.”

People are looking for space earlier and earlier to find a suitable match, and are willing to pay for it. As a result, Littell says that there is no lead-time in industrial, like there is for other asset classes. He also says that it depends what the company's need times are. If they don't have the luxury of time, they will take any available space in any Los Angeles submarket. “Areas that were considered 'ugly duckling' or not a core area are now in high demand,” says Littell.