Blog #q4 2023

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.

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!