Southern California Industrial Sector Soars in 2021

Vacancy rates continue to drop as rent grows

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Industrial real estate in Southern California has been the hottest in the nation, and it’s only gotten hotter so far in 2021.

Second-quarter data from market analysts show there are no signs of anything slowing down as user activity continues to increase. The twin Ports of Los Angeles and Long Beach have posted record-breaking action this year, and e-commerce and logistics drive demand with Fedex, Furniture of America, and Polar Air Cargo taking some of the top leases for the quarter.

SEE ALSO: Southern California Multifamily Rents and Sales Surge

Overall, market demand has outpaced supply, and any new construction is quickly absorbed, keeping vacancies low. For instance, the Inland Empire was at just 2 percent vacancy — the lowest in the nation.

Average rent for Inland Empire industrial space increased by an average of 7.1 percent year over year by May, hitting $6.32 per square foot, according to a new report by CommercialEdge. L.A. rent climbed 6.7 percent over the same period, where rates average $9.97 per square foot. For comparison, national lease rates averaged $6.59 per square foot, with a 4.4 percent year-over-year increase.

As of May 31, L.A and the Inland Empire also led the nation for individual sale totals since the start of the year, at $1.3 billion and $1.1. billion, respectively.

Kidder Mathews’ quarterly report shows that new developments entering the L.A. market have picked up since the pandemic shutdown, with more than 780,000 square feet completed in the last three months. Currently, 2.9 million square feet remains under construction, with more than 1 million square feet approaching delivery this quarter. 

Nationally, there is 456 million square feet of new supply in the planning stages, as developers race to meet the demand. In total, L.A. has 7.6 million square feet underway, and 17.8 million square feet are coming online in the Inland Empire.

Sale-leasebacks have become more popular in the industrial sector throughout the country during the pandemic. Kohl’s was responsible for the two largest industrial sale-leasebacks in 2020, selling two facilities in the Inland Empire for a combined $195 million to Brookfield Properties.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.