Schreck: The rise of ecommerce does make the industrial sector more intertwined with consumer spending than ever before. This does create some downside risk if consumer spending was to drop, but this is counterbalanced by the fact that e-retail is still rapidly increasing as a share of total retail sales. This structural shift is far from over, and will continue to act as wind in industrial's sails despite any consumer spending changes.

GlobeSt.com: Why are vacancy rates in Los Angeles expected to rise in 2020, before falling again, with such a limited supply?

Schreck: Our forecasts introduce the prospect of a cyclical economic downturn in 2019 and 2020. While not an outright prediction of a downturn, it's important to model in the potential effects on various markets as the current cycle continues to move into its latter stages. If such a situation is to arise, we expect all industrial markets, LA included, would see negative net absorption that would boost the vacancy rate and slow rent growth, despite the limited supply pipeline. The forecasted negative effects for LA are less severe than many other major markets, however, as it remains a key regional market for storage and distribution services and has a smaller supply pipeline than many markets.

GlobeSt.com What does the strength of the L.A. industrial market mean for investors here, and how should they be, if at all, adapting strategies for this market?

Schreck: Current investors in LA industrial can expect continued value appreciation and NOI gains, as we expect vacancies to remain low and effective rents to grow throughout our 5-year forecast. It also ranks as our top “buy” market based on this growth potential, increase in trade flows, healthy economy, and strong distribution network. Investing strategies will undoubtedly differ on a property-specific basis.

GlobeSt.com: Is L.A.'s activity and economic resilience unique, or are other markets experiencing similar trends? How does L.A. stack up?

Schreck: Industrial outlooks are of course tied to macroeconomic backdrops; economically and demographically, markets in the West, Southwest, and Southeast regions are thriving while many Northeast and Midwest metros are lagging in performance. As a result, many of our strongest industrial market forecasts belong to the major West markets like San Diego, the Inland Empire, Seattle, and others. LA ranks as the best of the bunch though.

The L.A. industrial market is booming—and it also may be recession proof. According to new research from Ten-X, the market passes the cyclical stress test for 2019/2020, with a prediction that vacancy rates will drop in 2021. In the nearer term, net absorption is expected to outpace out pace completions by one million square feet through 2018, bringing the vacancy rate in the greater L.A. area to 3%. To find out more about the strength of the market and why it is able to withstand a potential recession, we sat down with Matthew Schreck, quantitative strategist at Ten-X, for an interview.

GlobeSt.com: Why does L.A. industrial have lower than average downside risk?

Matthew Schreck: On the supply side, LA faces fewer supply additions than many markets, reducing the potential downside for fundamentals. Demand wise, trade flows have been picking back up throughout 2017, which is benefitting LA via the market's port exposure and strong distribution network. Combined with the growth of e-retail and storage needs, we think this provides a solid basis for demand that would keep LA industrial fundamentals healthy even in the event of an economic downturn scenario.

GlobeSt.com: Ecommerce has been a major driver for growth in the industrial market. Does this make the industrial market more susceptible to changes in consumer spending?

Schreck: The rise of ecommerce does make the industrial sector more intertwined with consumer spending than ever before. This does create some downside risk if consumer spending was to drop, but this is counterbalanced by the fact that e-retail is still rapidly increasing as a share of total retail sales. This structural shift is far from over, and will continue to act as wind in industrial's sails despite any consumer spending changes.

GlobeSt.com: Why are vacancy rates in Los Angeles expected to rise in 2020, before falling again, with such a limited supply?

Schreck: Our forecasts introduce the prospect of a cyclical economic downturn in 2019 and 2020. While not an outright prediction of a downturn, it's important to model in the potential effects on various markets as the current cycle continues to move into its latter stages. If such a situation is to arise, we expect all industrial markets, LA included, would see negative net absorption that would boost the vacancy rate and slow rent growth, despite the limited supply pipeline. The forecasted negative effects for LA are less severe than many other major markets, however, as it remains a key regional market for storage and distribution services and has a smaller supply pipeline than many markets.

GlobeSt.com What does the strength of the L.A. industrial market mean for investors here, and how should they be, if at all, adapting strategies for this market?

Schreck: Current investors in LA industrial can expect continued value appreciation and NOI gains, as we expect vacancies to remain low and effective rents to grow throughout our 5-year forecast. It also ranks as our top “buy” market based on this growth potential, increase in trade flows, healthy economy, and strong distribution network. Investing strategies will undoubtedly differ on a property-specific basis.

GlobeSt.com: Is L.A.'s activity and economic resilience unique, or are other markets experiencing similar trends? How does L.A. stack up?

Schreck: Industrial outlooks are of course tied to macroeconomic backdrops; economically and demographically, markets in the West, Southwest, and Southeast regions are thriving while many Northeast and Midwest metros are lagging in performance. As a result, many of our strongest industrial market forecasts belong to the major West markets like San Diego, the Inland Empire, Seattle, and others. LA ranks as the best of the bunch though.