SoCal Industrial Performing 'Beyond Anyone's Expectations'
Region has only two markets to post double-digit rent growth in November.
Southern California is home to the only two industrial markets that recorded double-digit rent growth among the top 30 markets in the country in November, according to a new report from Yardi’s CommericalEdge.
High demand in the Inland Empire (13.8%) and Los Angeles (10.7%) led to “brisk” rent increases, according to the report.
Low vacancy rates also were found throughout the region with the Inland Empire at 1.2% (the second-lowest vacancy rate in the US) and Los Angeles and Orange County posting rates of 2.2% and 3.0%, respectively.
According to MSCI’s November report, the industrial index remained the top sector for price growth, increasing 14.4% since last November. However, November marked the eighth consecutive month of declining rent growth.
Development Outpacing Absorption
Jerry Holdner, SoCal Region Lead, Innovation & Insight, AVANT, Avison Young, tells GlobeSt.com that the industrial market in Southern California is performing beyond anyone’s expectations. Although he is beginning to see vacancies increase from the record low levels over recent past quarters.
“For the first time in a while, development is outpacing absorption,” Holdner said. “We are also starting to see lease rates showing signs of stabilization after setting all-time highs in the first half of 2022.”
He said that in certain areas of the market, there are some development constraints due to the lack of available land.
“Recently, we’ve also seen some older properties being scrapped to make room for state-of-the-art logistic facilities,” Holdner said. “In West LA, some industrial sites are being converted to creative office space, and in Orange County, there have been a couple of older office buildings demolished to make way for new industrial projects.”
Average US Sales Price Up 17.8% YoY
Nationally, despite record levels of new supply delivered in 2022, the national vacancy rate contracted 20 basis points compared to October and sits below 4%.
Another sign that demand continued to outstrip supply is that the average sales price this year is 17.8% higher than 2021, according to the report.
Meanwhile, more than 742 million square feet of industrial space was under construction at the end of November. The Inland Empire had nearly 30.7 million sq. ft of space under development, or 5% of its overall stock.