L.A. Top Industrial Buy Market
Ten-X lists Los Angeles as the top buy market in the country, thanks to a 12.7% increase in rental rates last year and a 2.4% vacancy rate.
Los Angeles is the top buy-market in the US for industrial investment, according to Ten-X Commercial. While Los Angeles nabbed the top spot on the list, the other four top-buy cities were all located in California: San Jose, Oakland, San Francisco, San Diego. Los Angeles had a 12.7% increase in industrial rental rates last year and the report predicts rates will rise another 6% this year—all thanks to a low 2.4% overall vacancy rate, which falls to sub 1% in some L.A. submarkets. All of this is fueling investment activity and interest in the market, and makes it a top spot for investors. We sat down for an interview with Chris Muoio, senior quantitative strategist at Ten-X, to talk about the rating and find out more about the industrial market in L.A.
GlobeSt.com: Why has L.A. continued to be a top market for industrial development?
Chris Muoio: L.A. has remained a top market for industrial development for numerous reasons. First and foremost, the market continues to boast robust fundamentals. Vacancies are extremely tight in the mid-2% range and rents are growing robustly. Additionally, the proximity to the Port of LA and the associated trade/distribution activity makes L.A. a key market for industrial developers.
GlobeSt.com: Have the types of players and capital sources in the market changed in the last year, as a result of these fundamentals?
Muoio: No, not really, as a very large and critical market the LA industrial market has always had a very diverse set of players and capital sources.
GlobeSt.com: What industries are driving the vacancy rate to record lows?
Muoio: Los Angeles’ industrial market has always benefitted from trade through the Port, but the market has also really received a tailwind from the proliferation of e-commerce this cycle. This is a common theme shared with industrial markets across the country, but the increased need for distribution spaces, especially near major population centers, has been a huge demand driver for industrial space and this has certainly occurred in L.A.
GlobeSt.com: With little room for new development, how do you see this supply shortage playing out in the years to come? What is your market outlook?
Muoio: Our market outlook has vacancies increasing very mildly in the coming years, though still remaining extremely tight near 3%. This has more to do with our expectation for some waning in the pace of growth in the overall US economy than anything specific to L.A. Under this scenario we expect rents will continue to rise, though at roughly half their current pace.
GlobeSt.com: Rental rates continue to increase—with your prediction that they will rise another 6% this year. Are these extreme rents beginning to push tenants out of the market? How much more can they increase?
Muoio: LA industrial absorption remains extremely strong, so there is no evidence in aggregate that tenants are being squeezed out of the market. It is hard to say how much more LA industrial rents can increase, there is very little available supply and its critical location near the Port and for distribution purposes makes it vital for many. I suppose at some point trucking and using the more inland Riverside-San Bernardino market, which has lower rents and more availability makes sense but we do not appear to be near that point yet.