Market trends, leading or lagging indicators. As it relates to industrial property.
Below is a list of industrial real estate listings that were sold in the 4th Quarter of 2020 over 10,000 square feet in size in the Central Los Angeles industrial submarket. Information includes: buyer, seller, sale price, square footages, and property features for warehouses and manufacturing buildings.
Historically, the Arts District was home to industrial users who manufactured, distributed, and warehoused goods ranging from toys to frozen fish. Over time, the multi-story industrial buildings became antiquated and functionally obsolete – they began transitioning to lofts and studios for artists during the 1970’s.
Then in 1981 the Artist-In-Residence ordinance was passed by the city and it legalized the use of industrial buildings as work/live spaces for artists. During the 1990’s the area petitioned to be officially recognized as a city neighborhood called the “Arts District”.
About a decade ago, developers started converting the former warehouses into live/work lofts – starting with Barker Block Lofts, Toy Factory Lofts, and Biscuit Company Lofts. These projects helped spark a renewed interest in the Arts District, and the retailers have followed suit. Award-winning restaurants, designer apparel brands, and a multitude of breweries and cozy coffee shops make this neighborhood of mural-splashed warehouses truly unique.
The Arts District has also become a hotbed of residential and mixed-use development, with projects aimed at luring new residents to the live-work-play atmosphere of the area. The real estate players in area have shifted from private/local investors to developers with institutional funding, such as Shorenstein, Tishman Speyer, Hudson Pacific, etc. Office tenants are also vying to call this neighborhood home – Warner music Group, Adidas, Spotify and more will soon be settling into their world-class creative office spaces.
Although the landscape of the Arts District is changing dramatically, the intent of the developers and the local community is to keep the integrity, character, culture, and aesthetics intact for the most unique district of Downtown Los Angeles.
If you want to get a quick feel for the strength of the Central Los Angeles Industrial submarket, then glance at the below chart. It shows the 3 key metrics over the past decade.
The vital property statistic that I focus on the most is our low vacancy rate at just under 4%. The Southern California industrial real estate market has generally had the lowest vacancy rate in the United States over the past decade. Why? Because demand from tenants and buyers is very strong and we are an infill market given we have run out of vacant land to construct new buildings.
Here are the definitions of the other two metrics in the chart. For a complete list of commercial real estate terms defined please see our Glossary.
Net Absorption: The square feet leased in a specific geographic area over a fixed period-of-time after deducting space vacated in the same area during the same period.
Net Deliveries: The square feet of new construction delivered to the market minus any buildings that were demolished.
Don’t be fooled by the proponents of California’s Proposition 15, known as the split-roll property tax increase. If this measure passes it will devastate commercial property owners and the tenants.
How? Because hundreds of thousands of properties will be re-assessed at current market value and the annual tax bills on these will increase from $10-30k to $100-300k. Who will pay this? Well landlords with market rent may end up selling because their income may turn from positive to negative, as in a net loss.
Many landlords will try to pass off the increases to tenants since most commercial leases allow tax increases to be passed through to tenants. The tenants of course won’t be able to pay the increases and will likely default on their leases and may go bankrupt.
The CA legislature could have eliminated Prop 13 loopholes but they rejected that bill because they want to go for the big dollars in Prop 15, which will devastate the already pandemic devastated California economy. Vote NO.
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.