There’s no room in the staging warehouse, apparently. The Greater Los Angeles industrial market is “effectively running out of space to lease,” according to a new report.
Demand is so far ahead of supply—with rental velocity hitting an all-time high—that any space coming back on the market typically has a waiting list of tenants before it has a chance to hit the market. Afterwards, asking rents increased for the eighth consecutive quarter to an all-time high of $1.35 per square foot per month in the second quarter.
“The increase in prices can mainly be attributed to the fact that no new offers are entering the rental market”, CBRE‘s report read.
Leasing activity, driven by renewals, also increased 9% quarter over quarter to 6.3 million square feet, with e-commerce, retailers and packaging companies making up the essence of the action. Trammell Crowit is John Balestra said there is huge competition from developers and investors vying for land and stabilized assets, causing values to soar.
“At the beginning of this year people were saying it was crazy – we saw land values double almost overnight,” he said.
Stakeholders want to build more space to meet demand, but tight economic conditions – including rising interest rates, record inflation and imbalances between supply and demand – have led to market instability. market and overall uncertainty, as well as an even more costly development environment. Construction delays and rising costs have raised barriers to entry and completion of new projects, compounding the lack of available supply.
“The combination of a fairly substantial increase in construction costs, a longer duration of developments, combined with a spike in interest rates based on Fed tightening, kind of created this perfect storm of stress. on the promoters’ pro forma,” Balestra said. “We faced challenges getting some of the key materials and supplies we need to construct these buildings. … This has created a slowdown in deliveries of new supplies, as what used to take three to four to five months now takes 12, 14 or 16 months.
Trammell Crow is working on the construction of the final components of a huge industrial park in Santa Claritabut Balestra said the project has been delayed because materials for the roof structures that were ordered last fall won’t be delivered until next year.
“We’re seeing construction costs increase somewhere at the rate of 2-3% per month,” he said.
He added that all market shifts are gearing up for a “period of recalibration”, but there is still a lot of “global capital looking to park itself in asset production”.
“I’ve heard investors say, ‘We’re basically going to take off for the summer, work on our golf game and see how this all works out,'” Balestra said.
Gregory Cornfield can be reached at [email protected].