Supported by the phenomenal growth of e-commerce, leasing activity was strong in the first quarter after the steep declines experienced earlier in early 2020. In Q1, across the Central Market, 139 leases were signed for a total of 2,836,295 SF; the average asking rate was $0.96 PSF. Q1 leasing volume for Central LA was 25% higher than Q1 2020 levels. Another 133 warehouse properties, totaling 2,000,000 SF, were sold in the period with an average price of $291.43 PSF. The average rate will move up or down slightly quarter-to-quarter depending on how many older, functionally obsolete warehouse and manufacturing buildings are in the pool of available inventory. The limited amount of available first-generation, Class A space leases at a premium to the average rate.
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.
The vacancy rate stands at 2.1% while the availability rate is 5.4%. Both of these figures are slightly higher than a year ago. Los Angeles County is the largest industrial market in the nation, with over 1 billion square feet of industrial land, and the Central Los Angeles submarket maintains the lowest vacancy rate in the nation due to constant user demand for industrial warehousing space. Chicago #2, Dallas/Fort Worth #3, Philadelphia #4, Detroit #5. The five county area of Southern California maintained a three percent vacancy rate.
Investors and users have begun to exhibit cautionary behavior and thus the number of transactions have decreased.
Availability RateThe percentage of all space being marketed for sale or lease at a period of time in a given area.
Vacancy Rate The percentage of all unoccupied space being marketed for sale or lease at a period of time in a given area.
Gross Lease (GRS) A lease agreement in which the stated rent being paid to the landlord includes property taxes and property insurance.
Gross AbsorptionTotal number of properties leased or sold for occupancy at a period of time in a given area.
Triple Net Lease (NNN) A lease agreement whereby the tenant is obligated to pay for all the operating expenses, i.e. property taxes, property insurance, and facility maintenance.