The Southern California industrial market continues to exhibit consistent demand for tenant space and strong occupancy levels. The five-county area, which consists of approximately 1.7 billion square feet of industrial space, maintained a low vacancy rate averaging approximately 3%.
The economic climate is posing many challenges to the Los Angeles county as well as the Industrial Market;p however, the fundamentals remain in place for strong performance in the marketplace.
Capitalization Rates for industrial investment properties hovered just below six percent. Vacancy remains low in the 3-5% range, but several points higher in the Inland Empire. Many brokers have seen a 20-30% decline in transaction volume and demand.
More specifically, Gross Absorption is 50% compared to a year ago, with 2008 Q1 at 2.2 million versus 2007 Q1 at 4.1 million for the Central Los Angeles area. The Central Los Angeles Market is the largest industrial base in Los Angeles County. The Central Market remains one of the tightest and strongest submarkets in the region with little if any new construction due to the high cost and low availability of land.
To some degree, reduced container traffic has contributed to the diminished demand. Containers handled at the ports of Los Angeles and Long Beach were down 5.6% and imports sunk 5.9%, while exports increased 22%. Lease rates have held steady though. Â Although, tenants are demanding more concessions in the form of free rent and tenant improvements.