With an industrial base of over 1 billion square feet , the Los Angeles industrial market is one of the largest in the United States. It also has some of the highest asking rental rates, $0.95 per square foot, as well as one of the lowest vacancy rates (2.4%) in the nation. In recent quarters, net absorption has been soft, mainly due to lack of available inventory. Imports at the twin ports of Los Angeles and Long Beach, which handle roughly 40% of all imports into the country, continue to be a major industrial driver for the region. In addition, the region is the largest manufacturing center in the United States. For perspective, LA has more manufacturing jobs than the entire state of Illinois . Consequently, demand is still very strong. Although developers are attempting to keep pace with demand, they are not able to do so because of the scarcity of buildable land. Total warehouse square feet under construction fell from 5.4 MSF in 2018 to just 4.7 MSF in 2019. Investors love the potential for rent growth and low vacancy in tight markets and they have been aggressively securing deals with a willingness to accept lower returns for the stability and upside potential of the Los Angeles market. Approximately $3.80 billion worth of industrial real estate traded hands in Los Angeles in 2019, setting a new high water mark for the region.
According to a recent Los Angeles Times article, Los Angeles County was the largest county by output, with its $710.9 billion GDP accounting for 3.8% of the U.S. total. L.A. County added $395.2 billion to total U.S. GDP from 2001 to 2018.
This is good news for industrial real estate values!
Below is a chart showing the average sale price per square foot of industrial building area sold over the last 12 years in the Central Los Angeles industrial submarket. The $/SF dips on the left side due to the Great Recession and then continues its upward march to over $200/SF in 2019.
The data includes industrial zoned properties which include warehouses and manufacturing buildings with a small fraction converted to creative uses in the DTLA Arts District. The majority represent typical industrial uses around DTLA and Vernon and Commerce and Montebello. The data below are only an average as prices can vary greatly depending on building features and location.
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Whether a commercial real estate purchase or lease agreement, many industrial buyers/sellers and landlords/tenants choose arbitration and thus waive their rights to have the dispute litigated in a court or jury trial. Many believe arbitration saves time and money in the dispute resolution. However, in recent years a new avenue of dispute resolution has grown in use: judicial reference. However, this option has not been incorporation into the AIRCRE standard purchase contract or lease agreement yet. It would have to be added to the addendum. See below excerpt from a law firm for more insight.
Comparing the overall comparative benefits however, judicial reference has a few significant advantages over arbitration. For one, while arbitration is – except in very limited cases of egregious instances of fraud or arbitrator misconduct – binding on the parties, while judicial reference affords the parties complete appellate rights. That right of appeal, tied to the referee’s obligation to follow the rules of evidence (as opposed to an arbitrator’s limited obligation to do the same and the arbitrator’s proclivity to consider almost any evidence presented at the arbitration) renders a judicial reference a more secure and predictable dispute resolution option than arbitration. These factors alone may warrant the inclusion of a judicial reference clause as the alternative dispute provision in a contract of any consequence.
The only clear disadvantage to a judicial referee compared to an arbitration proceeding is that judicial reference proceedings must be public, while arbitration is usually a private affair, taking place at a private facility not open to the public with and, oftentimes, with no public record. Arbitration awards, even if confirmed by the Superior Court, are much more likely to be sealed and kept private which is often an important consideration in employment or intellectual property disputes.from Cohen Durrett LLP.
The L.A. County industrial neighborhood of City Terrace has seen increased buyer and investor activity in the past few years. Not only have several properties sold in this up and coming area, but a new 200,000 square foot industrial building is under construction by a well known developer.
The heightened interest in this once sleepy area may be due to it’s proximity to the Arts District, Boyle Heights, and Lincoln Heights, and also between Cal State University L.A. and the USC Keck School of Medicine. Nearby a Biotech/Bioscience campus is being built with heavy interest from prospective tenants. These are exciting developments for one of the oldest industrial tracks in L.A.
A new opportunity is a 106,141 square foot land parcel with 40,000 square feet of old manufacturing buildings on it. This site is being offered for sale at land value. Allowed uses in this M2 zone are manufacturing, distribution, trucking, cannabis, and a variety of other industrial and commercial uses. One advantage of operating a business in unincorporated county lands is that there is no gross receipts revenue tax as there exists in the City of Los Angeles.
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