Data Courtesy of CoStar™
Industrial vacancy in Los Angeles has increased in line with the national average over the past two years. However, while national vacancy expansion has been driven by supply growth, vacancy has increased in Los Angeles due to a contraction occupancy, which has fallen below pre pandemic levels. Net absorption is running negative for a ninth consecutive quarter, and speculative buildings are delivering vacant. Vacancy has reached 5.3% as of the second quarter of 2024, up from an all-time low of 1.7% at the beginning of 2022.
Of the more than 12 million SF of new industrial space completed since 2023 or currently under construction, more than 60% is still available for lease. Meanwhile, trailing 12-month net absorption of -13.6 million SF was weighed down by downsizing logistics tenants. U.S. businesses dialed back inventories last year, and worker shortages and labor negotiations hampered imports to Southern California ports. Vacancies have grown the most in Vernon, Commerce, and City of Industry, where ties to port activity are stronger. Logistics tenants have downsized as they shift their focus from growth to efficiency, often vacating older, less functional industrial buildings in these submarkets.
12 Mo Deliveries in SF
12 Mo Net Absorption in SF
Vacancy Rate
12 Mo Rent Growth
12 Mo Sale Volume
However, both inventories and imports to Long Beach and Los Angeles are rising again, and inflation is subsiding, which could lead to stronger demand in the coming quarters. West Coast port workers have a new labor agreement in place through mid-2029. Meanwhile, East and Gulf port labor negotiations are set to begin in May, and a potential delay in them would lead more cargo shippers to dock alternatively in Southern California. As a result, net absorption in Los Angeles could turn positive in the second half of 2024.
The majority of the 6.7 million SF currently under construction, which is over 90% available, will likely deliver vacant. However, the continual demolition of obsolete buildings will limit net supply growth, and a steep drop in construction starts since the end of last year foreshadows moderating supply additions in 2025, potentially as tenant demand reaccelerates. Vacancy does not rise substantially higher in the forecast. However, vacancies will continually expand until consumer spending growth, rising business inventories, and imports necessitate more industrial tenant expansions. For now, tenants are still unloading excess space.
Landlords have lowered weighted average asking rents by more than 10% from 2023 peaks, marking the first downtown in over a decade. Additionally, rising lease concessions in the market have lowered effective rental rates significantly. One to several months of free rent are common among new larger leases. Landlords will likely reduce asking rents further as vacancy elevates above historical averages. However, rents could rise again in 2025 as the minimal development on track to deliver a year from now signals the potential for market conditions to tighten even if tenant occupancy returns to pre pandemic levels.
You’ve got questions and we can’t wait to answer them.