SoCal Industrial Leasing Activity Declines 3%

The Southern California industrial market has quickly adapted to the new pandemic-fueled market fundamentals with minimal impact. A new report from CBRE analyzed the industrial market activity in Greater Los Angeles, Orange County and the Inland Empire, and found that activity declined only 3% compared to the same period in 2019 with a total of 40.5 million square feet.

“The Southern California industrial market was performing well pre-COVID and just took 30 days to adjust to the new reality,” Kurt Strasmann, executive managing director at CBRE, tells GlobeSt.com. “In quick order, the industrial markets rebounded, and regarding many of the metrics, COVID has actually improved market fundamentals across multiple fronts.”

Ecommerce sales was the biggest driver of the industrial activity through the pandemic and resiliency of the asset class. “One of primary drivers was the necessary increase in online purchases.  Online sales in short order exploded, which in turn directly affects the demand for industrial space,” says Strasmann. “Big box fulfillment and short-term warehousing demand from a board base of users has driven very strong market net absorption for new additional space as well as renewal transactions. We are seeing this trend continuing in the fourth quarter and into 2021. In addition to user demand, investor demand has been exceptionally strong as well, from both private and institutional investors.”

The Inland Empire led the market activity. According to the CBRE data, 54% of the region’s industrial activity took place in the Inland Empire, a total of 4 million square feet in leasing transactions. Like the greater Southern California region, the logistics drove the activity. “The primary driver in the Inland Empire has been the availability of new, state-of-the-art  big box product,” says Strasmann.

Southern California isn’t the only industrial market to benefit from the ecommerce boom during the pandemic. Most major industrial markets have seen similar resilience. “Southern California has certainly been one of the big winners during the pandemic but strength of the industrial market is nationwide,” says Strasmann. “For the most part, almost every major market has rebounded from the initial shock and impact of COVID-19. Secondly, in addition to the primary markets, COVID has accelerated the emergence of secondary markets as users look to expand their footprint and take advantage of the strength buoyed by online purchase trends. The recovery has been strongest in the big box product but overall the rebound is broad based.”

This isn’t a short-term trend. Strasmann expects the market to continue to benefit from the accelerated growth of ecommerce through 2021. “We don’t see ecommerce sales retreating but rather increasing, which only leads to stronger fundamentals for industrial.  We expect lease rates and sale prices to continue to increase across the region for both big and small buildings,” says Strasmann.

The industrial market has suffered from undersupply for years, and because demand is keeping pace through the pandemic, that trend will likely go unchanged, particularly in the infill markets. “It is so difficult to develop in the infill areas that Class A buildings will always be in short supply,” says Strasmann. “For the inland Empire where there is more available land for development, demand and development are currently aligned. It is a very healthy market.”