Blog #southern California

Here are a few of the important points from the quarterly update on the greater Los Angeles industrial real estate market: 

1. Market Conditions:
   • Vacancies and availability increased across all submarkets.
   • Lease rates experienced a decrease.
   • Sales and leasing activity hit historic lows.
   • Construction starts diminished.
2. Employment and Wage Trends:
   • Unemployment rate fell to 3.8%, with a slight increase in labor force participation rate.
   • Average hourly earnings rose by 4.1% year-over-year, surpassing inflation.
3. Inflation Concerns:
   • Inflation measures remain elevated, with growing worries that the disinflation process has stalled.
   • CPI report indicates inflation surpassed forecasts, with both month-over-month and year-over-year increases.
4. Economic Growth:
   • Economy grew by 2.5% on an annual basis at the end of 2023.
   • Forecasted GDP growth for Q1 2024 is around 2.4%.
5. Investor Sentiment and Market Behavior:
   • Cautious investor sentiment due to uncertainty over potential federal interest rate cuts and geopolitical challenges.
   • Opportunities for owner-occupiers to acquire buildings with less competition from institutional investors.
   • Smaller buildings sought after via SBA loans and conventional financing, but with stringent oversight from lenders.
6. Tenant Trends and Industrial Real Estate:
   • Lease renewals becoming more prevalent among tenants.
   • Tenants increasingly subletting unused space.
   • Despite market corrections, industrial real estate remains sought after, driven by barriers-to-entry and demand for newer, functional space in infill Southern California markets.

The report ends with a note that the Port of Long Beach and Port of Los Angeles are seeing higher volumes.  With West Coast labor concerns resolved and issues at the Panama Canal (drought), Red Sea (safety), East Coast labor negotiations and now Baltimore (FSK Bridge Collapse) expect this trend to continue.

A prevalent and unifying trend has emerged in the industrial markets of Greater Los Angeles & Long Beach, Orange County, and the Inland Empire during the third quarter of 2023: an uptick in vacancy rates. This development has undoubtedly captured the attention of real estate observers, raising questions about the resilience of these markets amidst evolving economic conditions.

While it's true that asking lease rates and sale prices have moderated from their previous peaks, they continue to hover at historically elevated levels. This is particularly noteworthy in the realm of leasing, where the prevailing rates are higher than what has been observed in the past. The apparent contrast between increased vacancies and persistent high asking rates creates an intriguing narrative within these markets.

The question that naturally arises is whether this shift in vacancy rates is a direct consequence of the recent Federal Reserve interest rate hikes or if it's a temporary slowdown in the market's momentum. The answer to this query remains somewhat elusive, and much like the economic outlook itself, it is subject to ongoing observation and analysis.

One plausible hypothesis is that the impact of the Federal Reserve's interest rate hikes has yet to fully materialize. These hikes may have prompted businesses and investors to reevaluate their strategies, potentially leading to a pause in leasing and purchasing activities. The full ramifications of such monetary policy decisions often take time to ripple through the real estate sector.

On the other hand, it is equally plausible that the observed increase in vacancy rates is a transient phenomenon. Industrial markets are influenced by a myriad of factors, including supply and demand dynamics, economic cycles, and regional conditions. Short-term fluctuations are not uncommon, and they may not necessarily indicate a fundamental shift in the health of these markets.

As we move forward, close monitoring and analysis of these markets will be essential to provide a more definitive answer. Factors such as employment trends, trade activity, and consumer behavior will play a pivotal role in shaping the trajectory of these industrial markets. Whether the current situation is a harbinger of sustained change or a brief pause in the continued growth of these markets will be revealed in the coming quarters, offering valuable insights into the ever-evolving real estate landscape.

• Fenced Yard

• Paved yard possible for increased lease rate

• Services Available (Water & Power)

• Minutes Away From 10, 60, & 71 Freeways

• Great Visibility

• Large Fenced and Paved Yard

• High Traffic Area

• City Gateway Segment

• Bonus Storage Downstairs (not included in SF)

AVAILABLE: 1.22 AC - (53,143 SF) Industrial Land

ZONING: Urban Neighborhood

• Truck Parking or Ourdoor Storage possible

• Cannabis Overlay Zone

• Excellent Access To The 71, 57 And 10 Freeways

±4.37 Acres of Land

Mixture of Zoning by Parcel (Majority of IX1)

MidTown Segment (2 Parcels) and SB 330 (1 Parcel)

70 Units Per Acre (306 Total) Low Income Housing Possible

Listed for Sale by Ron Mgrublian and Jeff Coburn, the ±10,208 SF Long Beach Warehouse property recently sold. 

The Long Beach Industrial Submarket vacancy rates remain 41% below those of the Los Angeles Industrial Market, CoStar has the average Long Beach Market Sale Price at $367 PSF.

Ron Mgrublian is a Commercial Real Estate Broker focusing on Industrial Real Estate and Warehouse Properties with the Lee & Associates Los Angeles – Long Beach, Southern California office.

The San Gabriel Valley Industrial Market remains robust.

Every key metric typically used to measure the health of the economy is performing well right now. GDP grew by 2.0% in Q1, and it is estimated to grow by 2.3% in Q2 by the Atlanta Fed . In terms of employment, over the last year the U.S. added 3.8 million jobs and now has an unemployment rate of 3.6%. With regard to inflation, both headline and core inflation are
trending downward. The Consumer Price Index (CPI) rose by 3% year-over-year in June and 0.2% for the month, below consensus estimates of 3.1% and 0.3%. This was the lowest rate of inflation since March 2021. And core inflation, which excludes food and energy prices, rose by 4.8% year-over-year and 0.2% for the month. The annual core inflation level was
the lowest since October 2021, and its monthly gain was the smallest gain since August 2021.

Most economists, forecasters, and business leaders are anticipating that the Fed will continue to raise rates throughout the year until it reaches its target inflation rate. For this reason, most forecasters still believe a mild and shallow recession is likely within the next twelve months. However, a significant minority are anticipating that the US economy will avoid a recession altogether. For example, in its latest forecast, the National Association of Realtors has the economy growing slowly every quarter throughout 2023 and projects the economy to grow by 1.1% for the whole year. 

Regardless of one’s stance on this issue, it is indisputable that the industrial market is in a favorable position to weather most headwinds the economy might face. Total retail sales grew by 1.6% in May 2023 compared to the same period a year ago , and as a percentage of total sales, e-commerce retail sales (one of the key drivers of the industrial sector) now stand at 15.1% – 3.9 percentage points higher than where it stood at its peak prior to the pandemic in Q4 of 2019. With this said, available space continues to increase and there has been a growing sentiment regarding a shift in negotiating power from Landlords to Tenants

• Truck and Container Storage Possible

• ±1,500 SF Building• Fenced and Secured Yard

• Unincorporated San Bernardino County

• Close Proximity to 10, 71, and 60 Freeways

The Los Angeles industrial real estate market is one of the most active and sought after in the United States. It is a diverse market, ranging from smaller facilities to large, modern distribution centers. The demand for industrial space in Los Angeles has remained strong due to the city's strategic location, growing population, and thriving economy. The Los Angeles industrial real estate market has also benefited from the rise of e-commerce, as online shopping has led to an increased demand for warehouse and distribution facilities. While the COVID-19 pandemic has had an impact on many industries, the industrial sector has remained resilient, with strong leasing activity and a stable vacancy rate. Overall, the Los Angeles industrial real estate market presents many opportunities for investors, developers, and tenants alike. 

The Los Angeles industrial real estate market in the fourth quarter of 2022 was strong, with robust demand and limited supply leading to higher rental rates and lower vacancies. The e-commerce sector continued to drive demand for warehouse and distribution space. Overall, the market was characterized by a favorable balance between supply and demand, with positive outlook for the future.

Pomona, January 27, 2023 - In a noteworthy achievement, Lee & Associates, a prominent national commercial real estate provider renowned for its regional expertise, recently concluded a significant sales transaction involving a sprawling 288,195 square foot industrial building situated at 2875 Pomona Boulevard, Pomona, California. This particular transaction stands out as the largest industrial real estate deal in Pomona for the entirety of 2022.

The successful negotiation was orchestrated by Ron Mgrublian from Lee and Associates Los Angeles – Long Beach, in collaboration with Ed Matevosian from CBRE, both representing the buyer, Hawk Eye Holdings, LLC. This strategic partnership and negotiation prowess resulted in the seamless sale of the substantial industrial property.

The industrial real estate landscape in the East San Gabriel Valley has proven to be robust, with vacancy rates maintaining historic lows at 1.1%. Notably, the average market sale price per square foot in this region is an impressive $307, further underscoring the significance and value of the transaction orchestrated by Lee & Associates.

This successful deal not only reflects the expertise and proficiency of Lee & Associates but also underscores the buoyancy of the commercial real estate market in Pomona. As the largest broker-owned firm in North America, Lee & Associates has consistently demonstrated leadership excellence for over 40 years. Operating across the U.S. and Canada, with a substantial presence in various states and provinces, including but not limited to California, Colorado, Arizona, Florida, and more, Lee & Associates boasts a network of over 1,300 brokers nationwide.

The firm's commitment to providing specialized commercial real estate services on a local, regional, and national level has solidified its position as a key player in the industry. Lee & Associates' successful negotiation of the 288,195 square foot industrial building sale in Pomona exemplifies their dedication to delivering outstanding results for their clients while contributing to the vibrancy of the commercial real estate market. .  

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