Rexford Posts Solid Q4 Despite Industrial Leasing Slowdown in SoCal
The REIT signed just about half of its quarterly leasing average over the past two years.
By Nick Trombola February 6, 2025 5:09 pm
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Southern California industrial giant Rexford Industrial Realty faced more headwinds at the tail end of 2024 — largely due to market challenges in its core portfolio demographic within the Inland Empire region — but the real estate investment trust’s leaders maintain the company is still performing above its peers.
High supply deliveries the past few years and market uncertainty around interest rates and larger geopolitics have led to weaker demand for industrial space, a trend that Rexford felt via its leasing activity in the fourth quarter of 2024, according to its latest earnings report. The REIT’s leasing volume reached just over 1 million square feet last quarter, significantly less than the 1.6 million square feet it reported in the third quarter of 2024, and about half of its average leasing pace over the past two years.
Rexford’s occupancy levels also dipped in the fourth quarter. The REIT’s consolidated portfolio, minus value-add repositioning properties, was 96 percent occupied and 96 percent leased, a 160 and 180 basis point drop quarter-over-quarter, respectively. Laura Clark, the company’s chief operating officer, said during the earnings call on Thursday that with 7 million square feet of leases set to expire this year, Rexford expects an additional 100 basis point drop in occupancy throughout 2025.
Still, the REIT’s leasing activity picked up significantly in January. Volume has already reached 1 million square feet since Jan. 1, including lease-ups of 200,000 square feet among the company’s repositioning and redevelopment projects.
About 90 percent of Rexford’s vacant spaces were also seeing at least some level of activity, Clark said, and that the company is focused on translating that activity into signed deals.
“The 1 million square feet of leasing [in the fourth quarter of 2024] was in line with our expectations that we discussed on the call last quarter, really driven by a minimum level of lease expirations, as well our expectations around this slower demand environment we were experiencing in the back half of the year,” Clark said.
Comparable rental rates also declined 1.5 percent quarter-over-quarter and 8 percent year-over-year, Clark said. Still, the change in price is notably better than that of the broader infill market, which is down 12.5 percent year-over-year and down 25 percent year-over-year among big-box industrial properties within the Inland Empire, Clark said, citing CBRE (CBRE). Indeed, Clark said that the average lease rate for Rexford’s 8 million square feet of volume across 2024 was 19 percent higher than the overall infill market.
When asked during the call if rent prices were close to bottoming out, and if they may stabilize this year, co-CEO Michael Frankel said Rexford’s core tenant base is poised for growth.
“The business is fundamentally sound,” Frankel said. “I think a lot of the data out there tends to disproportionately cover the big-box, larger box markets, frankly, and I think what you’re also seeing with regard to market conditions is that our smaller, medium-sized tenant base is showing more resiliency in terms of market rents, at least in Southern California, as compared to the larger box tenants. Your larger box tenants are down about 25 percent year-over-year, whereas our portfolio tenant, on average, of similar quality is down about 8 percent. So the backdrop and the foundation is there, ultimately, for market rent growth.”
Although devastating, the recent L.A. wildfires could ultimately increase tenant demand for warehouse and logistics spaces as rebuilding efforts begin in earnest, Frankel said.
“I think that there’s no question with the volume and magnitude of impact derived from the fires that we’re going to see demand,” Frankel said when asked about the impact of the blazes. “And I think it’ll come in phases, and frankly, we have tenants that service all phases of rebuilding. It’s going to start with infrastructure, pipes, conduit, wire. We have tenants that service that, and store that, and deliver that, and install that. And then it’s going to move on up to wood and framing and steel, and everything that goes into a home. And these aren’t just affordable houses and affordable housing units. These are homes that deploy extensive finishes and extensive levels of appliances. So I think there’s no question it’s going to drive incremental demand over time for the portfolio.”
In terms of revenue, Rexford reported $269.9 million for the full year 2024, compared to $227.4 million in 2023. The REIT completed nine acquisitions in 2024 for a combined $1.5 billion, including its $1 billion purchase of 48 properties across Southern California from Blackstone (BX) last spring, and sold five properties for an aggregated sale price of $44.3 million.
The REIT also announced a $300 million stock repurchase program over the next two years, which was authorized by its board after the end of the year. However, Jonathan Litt, a global real estate investor and strategist, said in a Tweet on Thursday morning that he was skeptical Rexford’s management team is well positioned to time the market well when buying back stock. “Bottom unlikely has been made in the share price,” Litt said.
“[…] not sure this management team, which invested more than $5 billion over the past three years at peak valuations, is best positioned to time the market when buying their shares.”
Nick Trombola can be reached at ntrombola@commercialobserver.com.
