Los Angeles Industrial Market Overview

Q2 2022 Investment Activity

The Los Angeles industrial market is the largest in the country by most measures, sitting at the center of a 2 billion square-foot Southern California industrial market. The metro currently has one of the lowest vacancy rates nationally, but with the recent demand for industrial space, rising rental rates have been increasing over the last three years pushing the market to new highs. Sales activity in the industrial sector has been robust as investors increase their focus on industrial buildings relative to retail and office properties. The base case forecast for asset price growth this year has been the strongest on record, with the recent rise of interest rates upping the price of financing.

Vacancy & Rent

Conditions for the industrial market are likely to remain favorable to landlords as vacancies are expected to remain historically low for at least the near term.

Industrial asking rents in L.A. are currently increasing at a faster pace than most markets across the country. Average metro asking rents increased by 14.1% during the past 12 months, compared to 12.1% nationally. Rent growth has been highest in areas where manufacturing and trade tenants are more concentrated. Top markets for annual rent growth include Carson, City of Industry, and Compton, where vacancy is less than 2%. Looking onward this year, rents are anticipated to continue to rise and occupancies are expected to remain high, which should sustain continued rate gains for the sector.

Sales Volume

The Los Angeles market continues to see exceptional industrial sales activity. The market saw $9.3 billion worth of property transactions over the past 12-month period, according to Costar, which are record levels. Investors presently face an incredibly competitive environment to acquire assets, with average market pricing at $292, well above national averages, and cap rates at 4.2%, among the lowest seen among industrial markets nationwide. Average market pricing is up 45% during the past three years, and it is anticipated that robust rent growth will continue with historically high occupancies for at least the short to midterm should sustain further gains. The market outlook expects the average market pricing to increase by another 20% during the next three years.

Development Activity

Given the built-out nature of the metro, supply growth within Los Angeles is generally limited with some of the highest land values in the country. This makes it difficult for developers to justify ground-up projects, as sites often have had higher and best use for office or multifamily projects. The market has seen 42.1 million square feet of new industrial space complete during the past decade; however, during the same time, the market saw 34.5 million square feet of space removed from its inventory.

The current construction pipeline remains limited, with only 5.0 million square feet under construction in the metro, representing just 0.5% of current inventory.