LOS ANGELES-Demand for small- and mid-sized industrial space has increased, according to Bart Reinhard, Jones Lang LaSalle's newly hired managing director. Reinhard will focus on industrial advising and negotiating in the Los Angeles region. He comes to JLL from CBRE, where he worked as a SVP, advising clients on real estate strategy. GlobeSt.com sat down with Reinhard to discuss the current industrial market in the Los Angeles area.

GlobeSt.com: How does the industrial market for existing properties (leasing and purchasing/sales) compare to new construction industrial development?

Bart Reinhard: Fortunately, the Inland Empire is a relatively young market in comparison to the rest of infill Los Angeles. This means that a fair share of the Inland Empire industrial market is class-A space offering modern building features such as 30-foot clear heights, ESFR sprinklers and larger truck courts. Today, 70% of what's under construction, on a square-footage basis, is 500,000 square feet or greater. Groundbreakings, however, are also increasing for smaller facilities as small- and mid-sized distributors are getting back into the leasing market. As a result, this is increasing occupancy in smaller-size segments. Existing buildings are feeling minimal impact so far, which means leasing is generally healthy and it's business as usual. As with most technology, its material handling systems and warehouse management systems command a price premium at first because there are high barriers to entry and a select few technology vendors control the market. As this technology market gets diluted from competition and prices start to drop, smaller businesses will start to play catch up and make some capital investments in their buildings. At that point, I believe we will begin to see a little bit more of a widening between modern versus vintage industrial product in the smaller sizes.

GlobeSt.com: In your opinion, why are so many new industrial developments coming online?

Reinhard: The mega box sector of the Inland Empire (400,000 square feet or greater) has seen positive absorption since 2009 and maintained a sub-5% vacancy rate for the past three years. In the same vein, industrial demand has outpaced availabilities at a healthy 3:1 ratio for more-or-less the past two years. We are not only, and quite literally, running out of space but are also experiencing rents that have rebounded by 40% from recessionary lows, reaching levels where strategic new construction is justified and could generate healthy returns. However, a market correction may be on the horizon for the mega box segment. Larger tenant requirements are flat compared to this time last year, and speculative deliveries are increasing. Supply, in other words, is getting ahead of current demand levels.

GlobeSt.com: Why are companies choosing Southern California for industrial development over other US markets?

Reinhard: Over the past five years, consumer purchasing patterns have shifted significantly with the advent of e-commerce. This has resulted in a permanent supply chain evolution where same-day or next-day delivery capabilities are the new norm. Companies have reorganized their distribution center networks around population densities, infrastructure accessibility and import hubs. With Southern California's population, freeway infrastructure, major trade corridors and proximity to the busiest ports in the U.S., it becomes a logistically superior location to the majority of the nation.

GlobeSt.com: Can we expect this growth in the industrial market to continue, or do you see that it will begin to slow?

Reinhard: Based on the demand we've seen this year in the Inland Empire, industrial is still strong and the favored class. We should continue to see steady growth. On the other hand, future new construction will be limited in Los Angeles since the market is mature and largely built out.

A recent GlobeSt.com story also reported research from CBRE that found development in Southern California has reached record levels since the recession.

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.

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