The industrial market in Los Angeles is the epitome of gilding the lily. Before the pandemic struck, Los Angeles was among the leading industrial markets in the country. Now, a new report from Marcus & Millichap predicts that industrial leasing activity will surpass pre-pandemic activity.

The forecast expects the industrial vacancy rate to drop 40 basis points this year, falling to 2.9%. Ecommerce growth from the pandemic along with record port cargo volumes and safety stock upgrades. As a result, Los Angeles will continue its reign as the market with the lowest industrial vacancy rate. At the same time, new construction activity is down from the five-year average. This year, 4.4 million square feet will delivery into the market, increasing the industrial stock by .5%. That is down by about 400,000 square feet from the five-year average. About 60% of the product under construction is already pre-leased.

Just as the availability of industrial space is falling, rental rates are rising significantly. Marcus & Millichap expects the average rent to increase 4.8% this year to $13.40 per square foot. Rental rates increased 3.5% in 2020, so this year's gain surpasses that already significant gains in 2020.