GlobeSt.com: Can you elaborate on some of those?

Muoio: Like all industrial markets, Southern California and the broader West are benefitting from the rise in e-commerce, which is increasing the demand for distribution space near major metros. The rise in cloud computing and resulting demand for server farms has also aided absorption. On a more localized level, the West region has seen stronger economic growth than other regions of the US, fueling stronger absorption rates. But more importantly, much of our trade with China and other Asian countries flows through West Coast ports (due to proximity), and this has fueled a robust demand for warehouse space near these ports. A smaller, but not insignificant, factor in Seattle and Portland has been the recent legalization of marijuana, as warehouse properties allow for climate-controlled environments ideal for those looking to grow marijuana at a large enough scale.

GlobeSt.com: How long is this strength expected to continue?

Muoio: The question of how far in the future we can expect this strength to last is somewhat complicated. As mentioned before, trade with China and other Asian countries has been a major driver of warehouse absorption in the region, and this could be subject to sudden disruption depending upon trade policy out of Washington. While major tariffs and trade restrictions have become less likely, this risk still looms. Barring any sort of policy disruption, these markets should continue to see strong demand as the economic expansion continues, since the secular rise in e-commerce and cloud computing has shown no signs of slowing.

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IRVINE, CA—Industrial vacancies have been low all cycle, and absorption has been robust, allowing the West and Southern California to digest fully the new supply coming on line, Ten-X's senior quantitative strategist Chris Muoio tells GlobeSt.com. According to a recent report from the firm that identifies the top five “buy” markets and top five “sell” markets for industrial real estate assets (based on a variety of statistical trends and proprietary calculations), the western region lays claim to four out of the top five “buy” markets, with Southern California benefiting in particular from trade flows with China since Trans-Pacific commerce is driving absorption in the region. The Ten-X Research report also reveals that technological shifts in the overall economy have been steadily delivering benefits to the industrial sector and have helped drive vacancy rates to their lowest levels in nearly two decades.

We spoke with Muoio about the reasons for the West's strength in industrial trades and how long this strength is expected to continue.

GlobeSt.com: Which factors make the West—and Southern California, in particular—such a strong “buy” market?

Muoio: The West and Southern California industrial markets are very healthy due to a variety of factors, and vacancies have been low all cycle, resulting in stronger rent growth. The low vacancies are a result of robust absorption rates that have allowed these markets to fully digest the new supply coming online. There are a myriad of factors behind the region's strong absorption.

GlobeSt.com: Can you elaborate on some of those?

Muoio: Like all industrial markets, Southern California and the broader West are benefitting from the rise in e-commerce, which is increasing the demand for distribution space near major metros. The rise in cloud computing and resulting demand for server farms has also aided absorption. On a more localized level, the West region has seen stronger economic growth than other regions of the US, fueling stronger absorption rates. But more importantly, much of our trade with China and other Asian countries flows through West Coast ports (due to proximity), and this has fueled a robust demand for warehouse space near these ports. A smaller, but not insignificant, factor in Seattle and Portland has been the recent legalization of marijuana, as warehouse properties allow for climate-controlled environments ideal for those looking to grow marijuana at a large enough scale.

GlobeSt.com: How long is this strength expected to continue?

Muoio: The question of how far in the future we can expect this strength to last is somewhat complicated. As mentioned before, trade with China and other Asian countries has been a major driver of warehouse absorption in the region, and this could be subject to sudden disruption depending upon trade policy out of Washington. While major tariffs and trade restrictions have become less likely, this risk still looms. Barring any sort of policy disruption, these markets should continue to see strong demand as the economic expansion continues, since the secular rise in e-commerce and cloud computing has shown no signs of slowing.