Rexford Projects 15% Rent Growth in SoCal Infill Markets

Rexford Industrial Realty is anticipating 15% market rent growth this year in the Southern California infill markets that make up Rexford’s massive industrial portfolio, the companies co-CEOs said in a Q4 earnings call last week.

Rexford said its acquisitions binge of infill industrial sites in off-market transactions—which in 2022 totaled $2.4B in 52 transactions encompassing 5.9M SF as well as nearly 32 acres for near-term redevelopment—will continue in 2023.

Rexford said it already has closed this year on two stabilized transactions totaling $405M, has more than $125M worth of “highly accretive transactions” in its pipeline under contract or accepted offer—and has identified as suitable candidates for acquisition off-market properties encompassing 250M SF of industrial space.

Rexford said a perfect storm of conditions in SoCal’s industrial market—including high demand from tenants, vacancies below 1%, lack of new land for development and “development constraints” hindering new supply—are creating an “incurable supply-demand imbalance” in SoCal that will continue to lift industrial rents.

“Our infill Southern California markets are operating at well above structural full occupancy of about 1% market vacancy and with the highest year-over-year market rent growth of any major industrial market in the nation,” Rexford Co-CEO Michael Frankel said, during the earnings call.

“Infill Southern California continues to experience a virtually incurable supply demand imbalance due to an extreme scarcity of land and development constraints that prevent any material increase in new supply,” Frankel said.

Rexford said market rents had increased across the company’s portfolio by 25% in 2022.

Citing data from CBRE, Co-CEO Harold Schwimmer said vacancy across all of Rexford’s infill markets was 1.1% at the end of the year, with the two largest submarkets—Orange County and South Bay—seeing vacancies decline to 0.7%. Other SoCal markets, including LA Mid-Counties, San Fernando Valley also have industrial vacancies below 1%.

Marketed transactions within these infill markets are trading at cap rates in the mid-3% to low 4% range as buyers continue to be drawn to the infill markets outsized rent growth and stability, the co-CEO said.

“Based on these unique market dynamics and our current leasing activity, we believe there is potential for upwards of 15% market rent growth this year within our infill Southern California markets,” Schwimmer said.

Rexford, the largest pure-play US-focused industrial REIT, reported 5.1M SF of leasing activity in 2022, achieving leasing spreads of 81% on a GAAP basis and 59% on a cash basis.

Rexford plans to continue to maintain the company’s liquidity—the REIT operates with a low-leverage balance sheet of about 15% net debt to total enterprise value—enabling Rexford to continue an infill acquisition strategy fueled by cash transactions.

During its acquisitions binge last year, Rexford used its rental database to zero in on properties with tenants that had below-market rents on leases that were soon expiring, acquiring these assets through off-market or lightly marketed cash transactions, enabling what the REIT calls “substantially above-market projected return on investment.”