Q2 2012 Los Angeles, California Industrial Submarket Trends

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Q2 2012 Los Angeles, California Industrial Submarket Trends

The South Bay area is the home of the ports of Los Angeles and Long Beach, and the key to the region’s economic prosperity, although distribution centers are located throughout the county and further inland, particularly in the Mid Cities submarket. The San Gabriel Valley contains more traditional manufacturing, along with high-tech and distribution space while the San Fernando Valley is more tech-and local-market oriented. Labor-intensive light manufacturing, including apparel and toys, clusters in central areas.

San Fernando Valley

  • Reis reports a vacancy rate of 18.8%, highest among eight submarkets, and an average asking rent of $8.63 psf, also the highest countywide, for 6.6 million square feet of warehouse/distribution space in the San Fernando Valley West submarket.
  • The vacancy rate is down 770 basis points year-over-year including 230 in the second quarter. Rents are up again, although not as much as first quarter, with the average asking rent up 0.5% for the quarter and the average effective rent up 0.8% to $7.77 psf. The year-over-year increases are 7.5% and 9.7%, respectively.
  • For 22.2 million square feet of warehouse/distribution space in the San Fernando Valley East submarket, Reis reports a vacancy rate of 7.7%, and an average asking rent of $7.23 psf.
  • There the vacancy rate is down 30 basis points from the prior quarter and 210 from a year earlier. The average asking rent is up 0.4% from the prior quarter and down 1.4% year-over-year, but the average effective rent is up 0.6% for the quarter and 0.3% year-over-year to $6.68 psf.
  • A 240,000-square-foot FedEx facility is under construction in San Fernando Valley East, according to Reis.
  • Reis reports a vacancy rate of 8.6% and an average asking rent of $12.32 psf for 3.1 million square feet of Flex/R&D space in the San Fernando Valley West submarket.
  • The vacancy rate is up 50 basis points from the prior quarter, and up 150 year-over-year. The asking average fell 0.6% during second quarter, with the average effective rent down 1.1% to $11.09 psf. The year-over-year increases are 1.7% and 2.8%, respectively.
  • The vacancy rate for 2.1 million square feet of Flex/R&D space in the San Fernando Valley East submarket is 6.7% according to Reis, while the average asking rent is $8.59 psf
  • Flex/R&D vacancy is down 300 basis points from a year earlier including an 80-basis-point second quarter decrease. The average asking rent is down 0.2% for the quarter and 2.7% from a year earlier, but the average effective rent is up 0.3% during the quarter to $7.71 psf. It remains down 1.2% year-over-year.
  • For a 222 million-square-foot LA North submarket that also includes the Los Angeles County portion of the Inland Empire, Cushman & Wakefield reports an overall vacancy rate of 4.7% and a direct weighted average net rental rate of $6.96 psf for warehouse/distribution space and $10.20 psf for office service.
  • “In terms of net demand, the North Los Angeles is the healthiest market of the greater Los Angeles region,” according to Cushman & Wakefield. “After a net loss of 2.2 million square feet in occupancy in 2010 when it overall vacancy rate climbed to 5.8%, the market has been slowly recovering. This quarter’s occupancy gain of 137,901 square feet brought the overall vacancy down to 4.7%, marking the sixth consecutive quarter of positive growth for this market.”

San Gabriel Valley

  • In the San Gabriel Valley, Reis reports a second quarter vacancy rate of 9.8% and an asking rent of $6.21 psf for 16 million square feet of multi-tenant warehouse/distribution space.
  • The vacancy rate is unchanged over three months and down 90 year-over-year. The average asking rent and the average effective rent were unchanged over the quarter, the latter at $5.69 psf. Rents are down 1.3% and 0.4% from a year earlier.
  • This is one of Los Angeles County’s largest industrial markets according to other sources, but the Reis inventory is small. This implies that a large share of the space is single-tenant, owner-occupied or general industrial space. The square footage per building in the Reis inventory is less than 38,000 square feet.
  • Moreover, Reis breaks out some of the more prominent industrial areas, such as City of Industry, in its separate and adjacent E. Los Angeles/Covina/Pomona Corridor submarket, which has 83.9 million square feet of warehouse/distribution space. Here Reis reports a vacancy rate of 9.0% and an average asking rent of $6.06 psf.
  • For 2.4 million square feet of multi-tenant Flex/R&D space in the San Gabriel Valley, Reis reports a vacancy rate of 6.2% and an average asking rent of $10.96 psf.
  • The vacancy rate decreased 40 basis points in the second quarter, and is down 40 from a year earlier. The average asking rent and the average effective rent increased 0.6% and 0.8% in the second quarter, the latter to $9.88 psf. The year-over-year decreases are 3.0% and 2.5%, respectively.
  • Cushman & Wakefield reports an overall vacancy rate of 4.7% and a direct weighted average net rental rate of $5.40 psf for warehouse/distribution space and $13.68 psf for office/service in the San Gabriel Valley. This source gives an inventory of 192 million square feet.
  • This market has been “relatively stable,” according to this source. “The largest deal of the second quarter was Evike.com’s seven-year lease for 106,266 square feet in Alhambra. Investment activity remains strong with 18 sales totaling 1.4 million square feet.”
  • Colliers reports the San Gabriel Valley vacancy rate “has remained flat over the quarter, at 4.1% which is the lowest the vacancy rate has been since” the first quarter of 2009. “The largest new lease of the quarter was National Distribution Centers moving into 300,000 square feet of space also in the City of Industry,” according to Colliers, which reports a weighted average asking lease rate of $5.28 psf.

South Bay

  • The South Bay submarket is home to the Ports of Los Angeles and Long Beach. There Reis reports a second quarter vacancy rate of 9.0%, and an asking rent of $6.43 psf for 100 million square feet of multi-tenant warehouse/distribution space.
  • The multi-tenant inventory here, according to Reis, is the second largest among the submarkets behind the adjacent Mid-Cities submarket.
  • This submarket posted 413,000 square feet of positive net absorption in the warehouse/distribution category in the second quarter, right after 910,000 was absorbed in the first quarter. The vacancy rate is down 40 basis points for the quarter and 200 year-over-year.
  • The average asking rent rose 1.3% during second quarter and the average effective rent rose 1.5% to $5.94 psf. The asking average is up 1.4% year-over-year, and the effective average is up 3.1%.
  • Nearly 1.2 million square feet of warehouse/distribution space is under construction in the South Bay submarket.
  • For 9.0 million square feet of multi-tenant Flex/R&D space in South Bay, the most among the submarkets, Reis reports a vacancy rate of 6.4% and an average asking rent of $10.46 psf.
  • The vacancy rate decreased 10 basis points in the second quarter on 8,000 square feet of net absorption, and is down 150 from a year earlier. The average asking rent is up 0.6% for the quarter and down 0.1% from a year earlier. The average effective rent increased 0.8% and 1.7% respectively to $9.50 psf.
  • Colliers reports a weighted average asking lease rate of $6.48 psf and a total vacancy rate of 4.8% for the South Bay.
  • According to Colliers, the largest lease deal of the quarter was Amerifreight taking 237,800 square feet of space in Rancho Dominguez. Other deals included Fujitsu Ten Corp. moving into 56,500 square feet of space in Torrance and Ryan’s Express leasing 44,700 square feet of space, also in Torrance.
  • According to Cushman & Wakefield, “the South Bay industrial market remained relatively healthy with a 5.1% vacancy rate.” With the large number of move-ins this quarter, the occupancy gains of 621,076 square feet “offset last quarters’ negative net absorption.” This source reports a direct weighed average net rental rate of $6.60 psf for warehouse/distribution and $10.56 psf for office service.

Central Los Angeles

  • In Central Los Angeles, the older but intensely-used industrial submarket surrounding Downtown Los Angeles, Reis reports a vacancy rate of 7.4%, lowest among the submarkets, and an average asking rent of $5.90 psf, for 77.3 million square feet of multi-tenant warehouse/distribution space.
  • The vacancy rate is down 40 basis points for second quarter and 60 from a year earlier on 309,000 square feet of net absorption for the quarter, a very solid performance. The average asking rent is up 0.7% over three months and 1.2% over twelve months. The average effective rent is up 1.1% and 2.2%, respectively, to $5.47 psf.
  • For 8.2 million square feet of multi-tenant Flex/R&D space, Reis reports a vacancy rate of 4.4%, and an average asking rent of $14.31 psf.
  • The vacancy rate plunged 380 basis points in the second quarter on 315,000 square feet of positive net absorption, more than reversing out the 51,000 square feet of negative net absorption recorded in the first quarter. The average asking rent increased 0.1% for the quarter, with the average effective rent up 0.8% to $12.65 psf. The year-over-year gains are 0.4% and 0.7%, respectively.
  • Colliers reports a vacancy rate of 4.1%, down 50 basis points from the prior quarter, and a weighted average asking lease rate of $5.76 psf for 245 million square feet in Central Los Angeles.
  • Underlining Reis’ observation regarding heavy demand, Colliers reports that second quarter “saw a huge increase in industrial activity, both leases and sales. Sales and leasing activity totaled 5,480,700 square feet” according to this source, “double the 2,637,300 square feet reported in the previous quarter.”
  • “The Central Los Angeles market began to show signs of life in 2011 with positive gains and at mid-year 2012, the market remained relatively stable with an overall vacancy rate of 3.9%,” according to Cushman & Wakefield. This source reports a direct average weighted rental rate of $6.48 psf for warehouse/distribution space.