Commercial Real Estate Market Report: Warehouse / Distribution in Los Angeles County, CA

[Manuel Angeles]

Market Overview
The Los Angeles warehouse/distribution market is comprised of 476.3 million square feet in eight geographic concentrations ranging in size from the 128.0 million square foot Mid-Cities submarket to the San Fernando Valley West submarket, which accounts for 6.6 million square feet. In the ten-year period beginning with Q2 2014, the South Bay submarket has experienced the greatest introduction of new inventory, 8.3 million square feet, amounting to 27.8% of all new competitive stock added to the market.

Asking and Effective Rent
During May, asking rents built upon April's 0.2% decrease, declining by an additional 0.2% to $12.82. The market has now experienced six consecutive monthly declines in asking rent, for a cumulative total of 1.2%. Since the beginning of Q2 2014, the metro as a whole has recorded an annual average increase of 7.5%. Effective rents, which exclude the value of concessions offered to prospective tenants, also declined by 0.2% during May. The identical rates of change suggest that, although rents drifted downward, landlords have avoided increasing the relative value of incentives packages used to attract and retain lessees. The asking rent growth rate of the metro's eight underlying submarkets over the past 12 months has been mixed, with cumulative change rates ranging from 1.9% (San Gabriel Valley) to -3.0% (South Bay).

Competitive Inventory, Employment, Absorption
Total employment in the Los Angeles metropolitan area increased by 14,200 jobs during the first quarter, representing a growth rate of 0.3%, while industrial employment contracted by 2,043. Since the beginning of Q2 2014, the average growth rate for industrial-using employment in Los Angeles has been -1.1% per year, representing the average annual loss of 6,824 jobs. The metro experienced negative absorption of 935,000 square feet during May. Over the last 12 months, market absorption totaled negative 7.8 million square feet; by comparison, the average annual absorption rate recorded since the beginning of Q2 2014 is 4.3 million square feet. In a long-term context, May vacancy rate is 0.5 percentage points lower than the 4.8% average recorded since the beginning of Q2 2014.

Market Outlook
REIS's new construction analysts report that 6.9 million square feet of new multi-tenant warehouse/distribution inventory will be introduced to the metro by the end of the year, and net total absorption will be positive 9.1 million square feet. As a result, the vacancy rate will drift downward by 0.5 percentage points to 3.8%. During 2025 and 2026, construction activity under surveillance is projected to deliver a total of 14.6 million square feet. Industrial employment growth at the metro level during 2025 and 2026 is projected to be essentially flat, but over the same period positive absorption will average 7.3 million square feet per year. The market vacancy rate will finish 2025 at 3.8% and will decline 0.1 percentage points to 3.7% by year end 2026. Between now and year-end 2024 asking rents are expected to rise 4.1% to a level of $13.35, while effective rents will advance by 4.5% to $12.89. On an annualized basis through 2025 and 2026, asking and effective rents are anticipated to climb by 3.7% and 3.8%, respectively, to finish 2026 at $14.35 and $13.88.

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