Blog #central

Southbay Submarket Key Highlights (Download Report for Midcounties, Central & Inland Empire Submarkets)

• Vacancy/Availability
  • Vacancy rate in Q4 2024 increased to 5.2%, up 80 basis points from Q3 and 130 basis points year-over-year.
  • High-end properties linger on the market for an average of 7.2 months, giving tenants more leverage in negotiations.
  • Total vacant available space expanded to 10.4 million square feet by the end of Q4.
• Rental Rates
  • Average asking rents fell 1.2% ($0.02) quarter-over-quarter and 8.9% ($0.16) year-over-year.
  • South Bay rents increased 34.1% between Q4 2020 and Q4 2024, reaching $1.63 NNN per square foot.
  • Only 76 lease transactions were completed in Q4, well below the historical quarterly average of 105 transactions.
• Construction
  • 1.37 million square feet under construction across 10 buildings in South Bay.
  • Two new buildings totaling 263,060 square feet were added in Q4 2024.
  • None of the 10 ongoing projects, including six exceeding 100,000 square feet, have been pre-leased, posing risks of higher vacancy rates.
• Leasing Activity/Absorption
  • Net absorption in Q4 2024 was -1.47 million square feet, continuing a negative trend since Q4 2022 (except for Q3 2023 and Q3 2024).
  • New leasing activity totaled 1.19 million square feet, well below the long-term quarterly average of 2.59 million square feet.
  • Average time to lease a building in South Bay increased to 6.4 months.
• South Bay Submarket: Top Leases in Q4 2024
  • 2027 Harpers Way, Torrance: Virco Manufacturing, 10/01/24, 559,000 SF.
  • 24760 S. Main St., Carson: DCW, Inc., 10/22/24, 231,008 SF.
  • 250 W. Manville St., Compton: Kair Harbor Express, 10/01/24, 206,483 SF.
  • 2230 E. Carson St., Carson: JAM-N Logistics, 10/01/24, 198,292 SF.
  • 18111 S. Santa Fe Ave., Rancho Dominguez: Air Products Manufacturing LLC, 10/01/24, 136,980 SF.
• Sales Activity/Investment Trends
  • Q4 2024 sales volume reached $375 million across 14 transactions, up from $163 million in Q4 2023.
  • Average price per square foot rose 36% quarter-over-quarter and 15.6% year-over-year, reaching $386.48.
  • Capitalization rates increased 160 basis points to 6.0%.
  • The Federal Reserve cut rates by 100 basis points in 2024, with further cuts expected in 2025.
  • Investor activity remains cautious amid policy uncertainties.
• South Bay Submarket: Top Sales in Q4 2024
  • 2501 Rosecrans Ave., Los Angeles: Rexford Industrial Realty, Inc., 12/06/24, 300,201 SF.
  • 18500 Crenshaw Blvd., Torrance: Gpjco Properties LLC, 12/05/24, 180,269 SF.
  • 2550 El Presidio St., Carson: Caroline Tseng, 10/31/24, 130,055 SF.
  • 15914 S. Avalon Blvd., Compton: Access Services, 12/02/24, 75,431 SF.
  • 14455 S. Broadway, Gardena: Aleah Miller, 11/27/24, 58,723 SF.

1. Vacancy Rate Increase in South Bay Industrial Market: 

• The South Bay Industrial market has experienced a year-over-year increase of 250 basis points in vacancy rates, reaching 3.9%.
• This uptick suggests a change in the demand and supply dynamics within the industrial sector of the South Bay.

 2. Sublease Transactions in Industrial Leasing: 

• Out of the 87 industrial lease transactions in the 4th quarter, 17.2% were sublease transactions.
• The prevalence of subleases in the industrial sector underscores a strategic approach by tenants, potentially driven by the need to optimize existing space or adjust to evolving operational requirements.

 3. Tenant Responses to Scarcity in Industrial Spaces: 

• Faced with continued scarcity, many industrial tenants in the South Bay have chosen to renew existing leases or implement efficiency measures within their current space.
• This strategic response has contributed to a cooling effect on the market, leading to a 3.2% year-over-year decrease in industrial lease rates.

 4. Larger Decline in Industrial Lease Rates for Direct Spaces: 

• The industrial lease rates for direct spaces have seen a larger quarter-over-quarter decline of 11.25%.
• This pronounced decrease indicates heightened competition and negotiation dynamics in the industrial leasing market, likely influenced by increased vacancy rates and tenant strategies.

 5. Landlord Concessions in Industrial Leasing: 

• The decline in industrial lease rates and the competitive landscape have prompted landlords to make some concessions to facilitate deals.
• Concessions may include adjustments in terms, incentives, or other favorable arrangements to attract and retain industrial tenants.

 6. Industrial Sales Transactions: 

• Industrial sales transactions have experienced a decline in the average number, dropping from a quarterly average of 20 to 13.
• Additionally, both the average and median industrial asking sales prices have decreased quarter over quarter, reflecting a softening in the industrial sales market.

 7. South Bay Industrial Market Positioning: 

• Despite the observed trends, the South Bay Industrial market remains 4.4% below the 20-year national average industrial vacancy rate.
• The areas surrounding the port continue to be more optimal for most Industrial operations, indicating a sustained high demand in the foreseeable future.

 8. Additional Reports for Midcounties, Central (Los Angeles), and Inland Empire Industrial Markets: 

• The report includes insights into the other industrial markets of Midcounties, Central (Los Angeles), and Inland Empire, providing a comprehensive view of the broader industrial landscape in the region.

In summary, the South Bay Industrial market is navigating through changes with increased vacancy rates, strategic tenant responses, and shifts in leasing and sales dynamics. Despite these trends, the market remains below the national average industrial vacancy rate, with certain areas, particularly around the port, expected to continue experiencing high demand. The inclusion of reports for other industrial markets enhances the overall understanding of the industrial real estate landscape in the region. If you have specific questions or would like to explore particular aspects further, feel free to let me know!