Los Angeles Commercial Industrial Market Report as of January 15, 2024

[Manuel Angeles]

Greetings,

This is Manuel Angeles with Exp Commercial.

Here is an update on the current Commercial Industrial Real Estate Market in Los Angeles County:

Los Angeles Industrial has been an attractive asset type for institutional investors and public REITs for over a decade, as private owners, many of whom are entering retirement years, have been divesting. Sales volume has remained strong relative to the nation despite the rise in interest rates, both due to local policy changes and distress. The ULA transfer tax implemented in the city of L.A. raised transaction costs at the start of April, leading many investors to streamline sales that might have otherwise closed in 23Q2. For example, one of many trades that closed on the final days of 22Q1 is GI Partners' acquisition of DirectTV's two-property, 210,000-SF facility in Los Angeles for $210 million ($1,000/SF), which contained data center facilities. The deed was filed with the county on the last day of March.

Sales volume totaled $5.2 billion in 2023, with another jolt in activity in 23Q3, this time driven by owner-user sales of companies that are facing financial challenges and could use the capital to increase liquidity. For example, in August, locally based 99 Cents Only Stores sold their 800,000-SF distribution building to Dart Warehouse Corporation for $190 million ($237/SF) in a sale-leaseback deal. The previous month, Yellow sold a 9.8-acre truck terminal, which included a 38,000-SF industrial building, for $80 million.

Price discovery is underway after years of outsized rent growth paired with low interest rates drove robust appreciation. The market price has averaged 11.5% annual growth over the past five years and long-term holds continue to reflect these gains. For example, Rexford Industrial REIT acquired a 608,000-SF distribution center in Santa Fe Springs for $210 million ($345/SF) in July 2023. Fully leased with GXO Logistics as the primary tenant, the property traded at a 5% cap rate. The seller, DWS Group, purchased the property in July 2015 for $62.25 million, representing an annual appreciation return of 16.4%. Rexford was attracted to the property for its mark-to-market opportunity.

At the same time, nearly all sales of properties valued over $5 million have sold for prices above their respective purchase price, including short-term holds. But some sellers are making concessions. For example, owner-user Sunset Olive Oil was asking for $21.5 million for a 31,200-SF warehouse in Pico Rivera that they originally acquired in August 2020 for $8.7 million. CapRock Partners, with plans to renovate and reposition the asset, was able to negotiate the price down to $19.2 million ($615/SF) when it sold in June 2023.

The premium for new construction is high due to its scarcity in the market. As an example, BeBella, an owner-user, recently acquired a 92,800-SF warehouse in Santa Fe Springs from Panattoni Development for $53.6 million ($578/SF) in September 2023. The market price for logistics properties in the Santa Fe Springs/La Mirada submarket at the time of sale was $314/SF.

Cap rates have been rising from a trough in 22Q1. At that time, trades that resemble Rexford Industrial REIT 608,000-SF distribution center in Santa Fe Springs that traded for a 5% cap rate were trading in the 3.5% to 4% range. The impact of the steep increase in interest rates is expected to continue to affect pricing in the short term. In the Base Case scenario, cap rates continue to march higher over the next four to eight quarters, placing downward pressure on prices.

 

Here are several graphs illustrating the current industrial market in Los Angeles County:

Full Los Angeles County Commercial Industrial Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/11... 

 

Access Exclusive Commercial Real Estate Market Reports in Los Angeles County Here: http://lacre.manuelangeles.com/

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I wish for you and your family a Peaceful & Prosperous 2024.
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Thank you.

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Best Regards,

Manuel Angeles
Broker Associate
CalDRE #01985856
Mobile: [phone]
Email: [e-mail]
Website: www.manuelangeles.com
Address: 155 N. Lake Avenue, 8th Floor, Pasadena 91101

Exp Commercial of California, Inc.
CalDRE #02134436  
Office: [phone], ext 300
Website: www.expcommercial.com
Address: 2603 Camino Ramon, Ste 200, San Ramon, CA 94583
  
| Commercial Real Estate Brokerage: Multifamily, Retail, Office, Mixed-Use, Industrial, Hospitality, Self-Storage, Land |