Introduction to the Recent Trends in Industrial Rents
in CRE in Southern California
The industrial real estate sector in Southern California has shown a surprising twist in the first quarter of this year, with a noticeable reduction in industrial rents in CRE for the first time since 2009. This shift, albeit modest, reflects a broader trend of market correction after years of rapid growth.
A Closer Look at the Market Adjustments
The slight dip, less than fifteen cents per square foot, was observed in key areas like Los Angeles and the Inland Empire. This change mirrors the slump experienced in 2009, signaling a possible trend of market rebalancing rather than a cause for alarm. Experts, including Savills Southern California Research Manager Caitlin Barrozo, interpret these adjustments as a healthy correction following the unsustainable boom driven by early pandemic conditions.
Impact of Market Dynamics on Rental Prices
In more detailed terms, the triple-net asking rents in the Inland Empire have decreased by 8.2%, dropping to $1.32 per square foot from a previous $1.43. Similarly, Los Angeles has seen a 9% decrease in asking rates, which now stand at $1.51 per square foot, down from $1.66. These adjustments are partly due to the influx of additional sublease space and new direct space entering the market.
Analyzing Supply Influences
2023 ended with record levels of new industrial space deliveries in the Inland Empire, totaling 12.2 million square feet. This surge in available space has naturally led to rental price adjustments. The substantial new construction, much of it unpreleased, has also contributed to increased vacancy rates, adding another layer of complexity to the market dynamics.
Vacancy Rates and Their Implications
Vacancy rates have risen notably in both regions. Los Angeles saw an increase to 5.4% from 3.3%, while the Inland Empire experienced a jump to 7.8% from 2.9%. These increases are attributed to the growing availability of sublease options and the arrival of new products on the market without immediate tenants.
Long-Term Perspective and Market Resilience
Despite these fluctuations, the industrial rental market remains robust when viewed through a long-term lens. Comparing current rates to those before the pandemic in 2020, rents have significantly increased from 70 cents per square foot in the Inland Empire and 84 cents in Los Angeles. These figures underline a strong market foundation, despite short-term volatilities.
Balancing Risks and Rewards in Commercial Real Estate Investments
While the dip in industrial rents in CRE might seem alarming at first glance, a deeper analysis shows a market that is adjusting and stabilizing. For those considering investments in commercial real estate, these fluctuations underscore the importance of expert guidance to navigate the complexities of the market. Whether you're looking to expand your portfolio or enter the market for the first time, consulting with a seasoned commercial real estate investment expert like a CCIM can provide crucial insights and aid in making informed decisions.
Brion Costa, CCIM
Century 21, Commercial
626-695-7385
DRE#: 00939864
