Blog #Warehouse

• 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.

AVAILABLE: ± 36,000 SF Lot Land

BUILDING SIZE: ±18,000SF

ASKING PRICE: $319 PSF ($5,742,000.00)

APN#: 6129-006-020 & 6129-006-021

ZONING: LA Unincorporated M2

• Free Standing Industrial Building

• Fenced/Paved Yard area

• No City Business Tax

• 3 Ground Level Doors/4 Bathrooms

• Solar Lighting

• Bonus Unfinished Mezzanine

• Close to 110, 405, 91 and 105 Freeways

• 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.

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.

AVAILABLE: ±27,750 SF Bldg on ±77,145 SF Lot

APN#: 7102-020-001

TERM: 3-5 Years

ZONING: M2

• Large Fenced and Paved Gated Yard

• Two (2) Dock High Loading Doors

• 14’-17’ Clear Height

• Free Standing Building

• High Visibility

• Close to 91 & 710 Freeways

GDP Growth: Q2 2024

• U.S. GDP grew at a 2.8% annual rate in Q2, up from 1.4% in Q1.
• Growth driven by increased consumer spending, business investment, and inventory growth.
• Consumer spending rose by about 2%, especially in health care, housing, recreation, and durable goods.
• Business investment increased, particularly in equipment and intellectual property.
• Inventory growth was notable in wholesale and retail trade, offset by declines in mining, utilities, and construction.
• Gross domestic purchases prices increased by 2.3%, down from 3.1% in Q1.
• Excluding food and energy, prices increased by 2.5%, down from 3.3% in Q1.
• Personal consumption expenditures price index increased by 2.6%, compared to 3.4% in Q1.
• Current-dollar personal income increased by $237.6 billion, down from $396.8 billion in Q1.
• Real disposable personal income growth slowed, and the personal saving rate decreased to 3.5%.

Employment: Q2 2024

• 206,000 jobs added in June, with a slight rise in the unemployment rate to 4.1%.
• Labor force participation rate increased to 62.6%, driven by prime-age workers.
• Wage growth slowed, with average hourly earnings rising 0.3% from May and 3.9% year-over-year.
• Job growth mainly in government and healthcare sectors.
• Private sector payrolls slowed, with gains in construction offset by declines in manufacturing.
• Job openings rose to 8.14 million in May, but a cooling trend is expected.

Monetary Policy: Q2 2024

• Federal Reserve left the overnight federal funds rate unchanged.
• Potential for at least one interest rate cut in 2024 remains.
• Disinflation resumed, with CPI inflation falling to 3.3% in May.
• FOMC held rates steady, awaiting further evidence of returning inflation to the 2% target.
• Financial markets expect a 0.25% rate reduction in September.
• Labor market showed better balance between supply and demand, with nominal wage increases trending down.

Global Economy: Q2 2024

• IMF forecasted global growth at 3.2% for 2024 and 3.3% for 2025.
• U.S. growth revised to 2.6% for 2024, slowing to 1.9% in 2025.
• Euro area expected to see modest growth driven by services and net exports.
• Japan's growth outlook revised downward due to supply disruptions and weak investment.
• Stronger activity in emerging markets, especially China (5% growth forecast for 2024) and India (7%).
• Latin America faced downward revisions for Brazil and Mexico due to natural disasters and moderating demand.
• Middle East and Central Asia impacted by oil production cuts and regional conflicts, with notable downward revisions for Saudi Arabia and Sudan.

·  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.

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.

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.

• ±4,000 SF part of a Larger Building

• Gated Secure High Image Business Park

• 3 Ground Level Doors

• 18’ Clear Height

• 2 Bathrooms

• Zoning: M-1

• 200 Amps Power

• Minutes to 91, 710, & 105 Freeways

The demand for industrial space from tenants in the third quarter showed a continuous decline, with the Orange County Industrial Market experiencing a negative net absorption of 848,736 square feet. This negative absorption is the most significant since the first quarter of 2019. Furthermore, it marks the third consecutive quarter of contraction, resulting in a total negative absorption of 1.8 million square feet for the year. Countywide, the vacancy rate increased by 40 basis points, reaching 3%, the highest it has been in the past 10 quarters. 

Despite these challenging trends, the average rent for industrial spaces has seen an 11% year-over-year increase. However, Lee & Associates' agents have observed a growing trend of landlords offering concessions on new lease agreements and lease renewals. This shift in landlord behavior suggests that they are becoming more attuned to the weakening demand in the market. 

While it may appear that leasing activity is on the decline, the industrial real estate market remains active. There is a notable presence of prospective buyer-users who remain undeterred by the rising interest rates. This indicates that even with the challenges posed by increased vacancies and negative net absorption, there is still considerable interest and activity in the market from those looking to purchase and utilize industrial spaces, especially in Orange County.