Market Report

GDP Growth: 

• U.S. GDP grew at an annualized 2.8% in Q3, slightly below Q2's 3%.
• Consumer spending rose 3.7%, the fastest since Q1 2023, but residential investment dropped 5.1%, its second consecutive decline.
• Inflation hit the Fed's 2% target, with unemployment steady near 4%.

 Employment: 

• 254,000 jobs were added in September, the largest gain in six months.
• The unemployment rate fell to 4.1%, while wages increased 4% year-over-year.
• Upward revisions to prior months' job numbers highlight ongoing labor market resilience.

 Monetary Policy: 

• The Federal Reserve cut interest rates by 0.5% in September, lowering the federal funds rate to 4.75%-5%.
• Strong job data makes further significant rate cuts unlikely.
• Fed Chair Powell emphasized balancing inflation control with stable employment.

 Global Economy: 

• IMF projects global growth of 3.2% for 2024-2025, with risks from regional conflicts and trade disruptions.
• Emerging Asia sees growth upgrades due to semiconductor demand, while Europe faces downgrades.
• Global inflation is expected to decline from 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025.
• Long-term growth remains constrained by aging populations and weak productivity.

• The Inland Empire West submarket experienced a stall in net activity during Q3.
• Subleases and renewals dominated top lease transactions.
• Vacancy rates increased slightly, while availability trended downward.
• Pricing remained steady, but tenant concessions (e.g., free rent, tenant improvements) have risen and are now widely expected.
• Industrial construction slowed significantly, with the development pipeline at 43% of its year-over-year level.
• Institutional interest in the market continues to grow despite reduced activity.

• In Q3 2024, San Gabriel Valley's industrial market remained robust with a 6.3% vacancy rate.
• Rental rates softened slightly, now at $17.76 per square foot (PSF), NNN annually, indicating a balanced supply-demand dynamic.
• The construction pipeline remains active, with 545,702 square feet of new industrial space under development.
• The City of Industry, a dominant player in the area, accounts for 72% of SGV’s industrial space, focusing on modern Class A warehouse and distribution centers.
• As market conditions shift, tenants and developers must stay agile, seizing opportunities and addressing challenges in this thriving industrial landscape. Adaptability will be essential for maintaining a competitive edge.

• Demand for industrial space weakened countywide in Q3, with an increase in sublet space.
• Vacancy rates are the highest since 2013 but still 200 basis points below the national average.
• The decline in net absorption is the largest year-to-date drop in 15 years.
• Average rents fell for the seventh consecutive quarter.
• Countywide negative net absorption in Q3 totaled 1.3 million SF, bringing the annual total to 4.1 million SF, the highest since the 2008 financial crisis.
• The average triple-net rental rate dropped to $1.59 per SF, down from the $1.71 peak at the end of 2023.
• Q3's 5% vacancy rate is an increase from 2% in Q1 2023.

In Q3 2024, the South Bay submarket saw a continued increase in vacant space, with the vacancy rate rising to 4.4%, up 20 basis points from Q2 and 50 basis points year-over-year. Tenants are becoming more selective, taking advantage of longer decision-making periods. Despite a 7.8% year-over-year decline in average asking rents, rents remained somewhat resilient due to concessions from landlords.

Leasing activity included 1.37 million square feet of new deals, though it was below the 10-year average. Net absorption was positive for the first time in a year, at +669,007 square feet. Construction continues with 1.5 million square feet in progress, which could impact vacancy rates if demand doesn't catch up.

Sales activity increased from Q2 but remained significantly lower than in 2023. Sales volume reached $71.9 million, and average prices per square foot dropped 22.5% year-over-year to $258.92.

• Development pipeline down 57% year-over-year
• Vacancy rates up 48%
• Lease rates adjusted by 28%
• Tenant activity has resumed in the Inland Empire West industrial market
• Historic levels of positive net absorption in the submarket
• Multiple 1-million-square-foot lease transactions executed by credit tenants
• Nearly 5 million square feet of move-ins from big-box deliveries with prior year leases
• Inland Empire continues to attract institutional capital
• Class A 835,000 square foot building sold for nearly $200 million

• Leasing Activity: 2.3 million square feet (MSF) of industrial space leased this quarter, up by 1.03 MSF from the previous quarter.
• Vacant-Availability Rate: Dropped by 0.4% from last quarter to 4.2%, but still 2.8% higher than last year.
• Market Trends: Increase in vacant-available space due to tenants returning unused space since 2023.
• Asking Lease Rates: Declined to $1.71 (direct) and $1.68 (overall) per square foot (PSF), though still 40%+ higher over the last five years. Class A spaces aim for $2.00+ PSF.
• Tenant Behavior: Tenants are more selective and pushing for rental concessions, with landlords becoming more negotiable.
• Net Absorption: Positive for sublet space (525,417 square feet) but overall net absorption negative at -539,467 square feet.
• Sales Volume: $51 million across 9 transactions in the South Bay, with average building prices at $288.61 PSF and land values at $143.79 PSF.
• Capitalization Rates: Increasing due to higher capital costs, forcing sellers to adjust prices.
• Interest Rates: Around 6.5% for fixed, 25-year owner-occupier loans.
• Insurance Challenges: Rising premiums and providers exiting the California market.
• Property Values: Some industrial areas affected by homelessness and vagrancy, impacting property and rental values.

• In Q2 2024, San Gabriel Valley's industrial market showed resilience with a 5.9% vacancy rate.
• Rental rates now stand at $18.72 PSF, NNN annually.
• The construction sector is active, with 706,000 SF under development.
• The City of Industry represents 72% of SGV's industrial base and is a key player in new Class A warehouse and distribution space projects.
• Tenants and developers must stay vigilant and adapt to market fluctuations to capitalize on opportunities in the evolving SGV industrial landscape.

·  Tenant demand in Orange County slowed in the first half of the year. 

·  Vacancy rate increased from 1.9% at the end of 2022 to 4.4%. 

·  Leasing activity decreased. 

·  Rent growth has flattened after over a decade of steady double-digit annual growth. 

·  Negative net absorption of 799,275 SF in Q2 and negative 2.1 million SF in Q1. 

·  Total decline in the past six quarters exceeds 5 million SF. 

·  Long-term average vacancy rate since 2020 is 4.5%. 

·  Tenants face less competition for space. 

·  Landlords are offering more lease concessions. 

·  Largest sale in Q2: 278,572-SF Fullerton building sold for $338 per SF by American Realty Advisors to Rexford Industrial Realty.

• Easing tenant demand has led to a significant increase in available industrial space in Orange County.
• Total available space has almost doubled, reaching 18 million square feet over the last 18 months.
• Both direct and sublet space have contributed to this increase, with sublet space nearly doubling to 3.3 million square feet.
• New construction has also played a role, adding 2.6 million square feet of space last year.
• As a result, the countywide vacancy rate has risen from a record low of 1.8% in Q4 2022 to 4.1% by the end of Q1.
• Negative net absorption was observed in three out of four major submarkets in the county during Q1.
• Rent growth has slowed to 2.5% year over year, offering some relief to Orange County tenants.
• The current triple-net county average rent is $1.66 per square foot, reflecting a 126% increase over the past decade.

During the fourth quarter of 2023, the San Gabriel Valley Industrial Submarket of Los Angeles experienced a continuation of the trend where available space increased once again, marking a significant factor in the local industrial real estate landscape. This rise in available space suggests potential shifts in market dynamics, such as increased supply or adjustments in tenant demand, influencing the overall vacancy rates in the submarket. 

The submarket faced a minor setback in terms of average rents, which decreased by $0.07 to $1.56 NNN (Triple Net Lease). This decrease may be attributed to the delicate balance between supply and demand, tenant negotiations, and broader economic factors that impact the pricing dynamics of industrial properties in the San Gabriel Valley. 

Within the Pomona Industrial Market, warehouse buildings in the fourth quarter of 2023 had an average sale price of $308.76 per square foot (PSF). This figure provides valuable insights into the local market's pricing dynamics, reflecting the perceived value of industrial properties in Pomona during that specific quarter. 

In the neighboring City of Industry, the average sale price per square foot for warehouse buildings stood higher at $351.68. This higher price point suggests that the City of Industry maintained a premium position within the San Gabriel Valley, potentially due to factors such as strategic location, specialized facilities, or a higher level of demand in that specific submarket. 

Looking at the San Gabriel Valley Industrial Market as a whole, the average sale price settled at $304.52 PSF during Q4 of 2023. This comprehensive figure encompasses the performance of various submarkets within the San Gabriel Valley, highlighting the overall pricing trend for industrial properties across the region. 

In summary, the fourth quarter of 2023 witnessed an increase in available space in the San Gabriel Valley Industrial Submarket, coupled with a slight decrease in average rents. The variations in average sale prices across specific markets, such as Pomona and the City of Industry, add complexity to the overall real estate landscape. Stakeholders and investors may find value in analyzing these trends to make informed decisions in response to the evolving dynamics of the San Gabriel Valley's industrial real estate market.

The industrial real estate landscape in Orange County has experienced a notable shift in the fourth quarter of 2023, marked by a noticeable impact on rental dynamics. The moderation in tenant demand has contributed to a increase in vacancy rates during this period thereby leading to a deceleration in rent growth. This shift in market dynamics has implications for both property owners and tenants, shaping the overall economic landscape of the region. 

One of the noteworthy industrial real estate transactions during Q4 of 2023 was the acquisition of 7050 Village Drive in Buena Park, CA, by Buchanan Street Partners. This move underscores the strategic investment decisions being made in response to the evolving market conditions. Additionally, Home & Body Co.'s leasing of 5800 Skylab Road in Huntington Beach, CA, reflects ongoing activity with industrial real estate warehouse buildings, albeit with a focus on leasing arrangements. 

Analyzing specific areas with Orange County warehouse and industrial properties, the sales prices have exhibited distinct trends. Huntington Beach, for instance, has seen an average price of $380.00 per square foot (PSF) over the past year. This figure provides valuable insights into the relative strength of the market in this particular locale. In comparison, Garden Grove has experienced a slightly lower average sale price at $320.00 PSF, indicating variations in the pricing dynamics across different parts of the county. 

Furthermore, lease rates with Orange County industrial properties averaged $1.58 per square foot during the fourth quarter of 2023. This figure serves as a benchmark for property owners and tenants alike, offering a glimpse into the prevailing economic conditions shaping leasing negotiations. The asking lease rates provide crucial information for businesses seeking commercial spaces, influencing decisions on location and affordability. 

In summary, the industrial real estate landscape in the Orange County market is adapting to changing demand patterns, with notable transactions and pricing trends providing valuable insights for industry stakeholders. As the market navigates through these shifts, strategic decision-making and a nuanced understanding of local dynamics will continue to be key elements for success in the region's real estate sector.