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Thursday, Mar 28, 2024
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Greater L.A. Industrial Up, Office Ends Streak on Positive Absorption

The Greater Los Angeles industrial market outperformed most areas in the U.S. in the past 12 months, a trend that continued in the first quarter.

Vacancy and availability rates have fallen from their recessionary peaks, while asking lease rates have leveled off and stabilized. Industrial demand continued to gain momentum in 2012, especially for class A industrial buildings larger than 100,000 square feet.

The latest 12-month growth rate was 3.7% since the rate increased 2 cents compared to last year.

Rents are expected to grow by about 6% over the next 12 months, placing them near late-2008, early 2009 levels.

Activity among users decreased in comparison to the previous quarter, a decline that can be partially attributed to low available inventory levels posing limited options for tenants. Momentum should pick up throughout the year as new product is delivered to the market.

A total of nearly 9.9 million square feet of gross leases and user sales was recorded in the first quarter, 37% of which were deals 100,000 square feet and larger.

Notable Deals

Transactions of note included a 775,000-square-foot lease in the San Gabriel Valley to Port Logistics Group. Floor & Decor leased about 148,800 square feet in Carson, which is part of the South Bay submarket.

Positive net absorption totaled more than 1.8 million square feet in the first quarter, with half of the eight submarket areas seeing gains of more than 100,000 square feet, led by San Gabriel Valley at 1 million square feet, Ventura at 462,700 square feet, and the Greater San Fernando Valley at 151,097.

The South Bay submarket was alone in posting negative net absorption, at 105,957 square feet.

There are currently 3.9 million square feet in the construction phase, most in the South Bay submarket, projects that represent a dramatic increase from the record-low levels of 2010.

Most of the South Bay’s development is part of the Douglas Park project and another development in Long Beach.

The Greater Los Angeles office market ended a two-year streak of positive net absorption in the first quarter.

Market fundamentals, while still somewhat soft, are projected to rebound as the economy continues to strengthen.

The market is still recording historically high vacancy rates, but tenant demand is expected to increase over the next two to three quarters.

Overall asking lease rates in Greater Los Angeles flattened in the first quarter after slowly rising during the past eight quarters. The average rate was $2.48 per square foot at quarter’s end, for an annual growth rate of 4.2%. The rate has climbed about 5.5% from its lowest point post-recession.

Vacancies, Construction

The overall vacancy rate in Greater Los Angeles was 17.4% at the end of the first quarter. That was relatively flat compared to last quarter and down from 17.8% a year earlier.

Office projects under construction total about 415,000 square feet, similar to that of the 2012 year-end and yet considerably lower than 2008, when the market saw 4.7 million square feet of development activity. All new construction is in West L.A.

Analysis provided by CBRE Research.

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