Research - APRIL 20, 2017

L.A. industrial market vacancy ticks down to record-low of 1.1%

by Andrea Waitrovich

In the first quarter 2017, the Los Angeles industrial real estate market began the year where it left off in 2016 with more than 1.2 million square feet of net absorption, according to Transwestern.

As the regional economy continues to grow, demand for industrial space has remained strong, leading to historic lows in space availability and vacancy. More than 840,000 square feet of new space was delivered to the market during the first quarter, while 5.6 million square feet is now under construction; this constitutes just 0.7 percent of the L.A. metro area’s massive industrial base, meaning that the market will remain severely supply constrained in 2017 regardless of how the overall economy performs.

Since the market began its recovery in 2011, nearly 38 million square feet of industrial space in the region has been absorbed as the recovery in global trade volume and strong consumer spending has directly led to extremely high demand for warehouse and manufacturing space. With many retailers and their logistics partners increasingly looking for “last mile” warehousing, especially in response to the rapid growth in e-commerce, expect no slowdown in industrial space demand in the Los Angeles market in 2017, absent a global macroeconomic shock and/or major changes to international trade policy.

The Los Angeles industrial market reported a total of $570.2 million in property sales in the first quarter, which was up 24 percent from the $459.1 million in industrial sales reported a year ago.

Transwestern expects investor interest in the Los Angeles industrial market to remain high, but with interest rates forecasted to rise in 2017, expect more cooling in pricing as average cap rates tick up.

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