Market Report

• Development pipeline down 57% year-over-year
• Vacancy rates up 48%
• Lease rates adjusted by 28%
• Tenant activity has resumed in the Inland Empire West industrial market
• Historic levels of positive net absorption in the submarket
• Multiple 1-million-square-foot lease transactions executed by credit tenants
• Nearly 5 million square feet of move-ins from big-box deliveries with prior year leases
• Inland Empire continues to attract institutional capital
• Class A 835,000 square foot building sold for nearly $200 million

• Leasing Activity: 2.3 million square feet (MSF) of industrial space leased this quarter, up by 1.03 MSF from the previous quarter.
• Vacant-Availability Rate: Dropped by 0.4% from last quarter to 4.2%, but still 2.8% higher than last year.
• Market Trends: Increase in vacant-available space due to tenants returning unused space since 2023.
• Asking Lease Rates: Declined to $1.71 (direct) and $1.68 (overall) per square foot (PSF), though still 40%+ higher over the last five years. Class A spaces aim for $2.00+ PSF.
• Tenant Behavior: Tenants are more selective and pushing for rental concessions, with landlords becoming more negotiable.
• Net Absorption: Positive for sublet space (525,417 square feet) but overall net absorption negative at -539,467 square feet.
• Sales Volume: $51 million across 9 transactions in the South Bay, with average building prices at $288.61 PSF and land values at $143.79 PSF.
• Capitalization Rates: Increasing due to higher capital costs, forcing sellers to adjust prices.
• Interest Rates: Around 6.5% for fixed, 25-year owner-occupier loans.
• Insurance Challenges: Rising premiums and providers exiting the California market.
• Property Values: Some industrial areas affected by homelessness and vagrancy, impacting property and rental values.

• In Q2 2024, San Gabriel Valley's industrial market showed resilience with a 5.9% vacancy rate.
• Rental rates now stand at $18.72 PSF, NNN annually.
• The construction sector is active, with 706,000 SF under development.
• The City of Industry represents 72% of SGV's industrial base and is a key player in new Class A warehouse and distribution space projects.
• Tenants and developers must stay vigilant and adapt to market fluctuations to capitalize on opportunities in the evolving SGV industrial landscape.

·  Tenant demand in Orange County slowed in the first half of the year. 

·  Vacancy rate increased from 1.9% at the end of 2022 to 4.4%. 

·  Leasing activity decreased. 

·  Rent growth has flattened after over a decade of steady double-digit annual growth. 

·  Negative net absorption of 799,275 SF in Q2 and negative 2.1 million SF in Q1. 

·  Total decline in the past six quarters exceeds 5 million SF. 

·  Long-term average vacancy rate since 2020 is 4.5%. 

·  Tenants face less competition for space. 

·  Landlords are offering more lease concessions. 

·  Largest sale in Q2: 278,572-SF Fullerton building sold for $338 per SF by American Realty Advisors to Rexford Industrial Realty.

• Easing tenant demand has led to a significant increase in available industrial space in Orange County.
• Total available space has almost doubled, reaching 18 million square feet over the last 18 months.
• Both direct and sublet space have contributed to this increase, with sublet space nearly doubling to 3.3 million square feet.
• New construction has also played a role, adding 2.6 million square feet of space last year.
• As a result, the countywide vacancy rate has risen from a record low of 1.8% in Q4 2022 to 4.1% by the end of Q1.
• Negative net absorption was observed in three out of four major submarkets in the county during Q1.
• Rent growth has slowed to 2.5% year over year, offering some relief to Orange County tenants.
• The current triple-net county average rent is $1.66 per square foot, reflecting a 126% increase over the past decade.

During the fourth quarter of 2023, the San Gabriel Valley Industrial Submarket of Los Angeles experienced a continuation of the trend where available space increased once again, marking a significant factor in the local industrial real estate landscape. This rise in available space suggests potential shifts in market dynamics, such as increased supply or adjustments in tenant demand, influencing the overall vacancy rates in the submarket. 

The submarket faced a minor setback in terms of average rents, which decreased by $0.07 to $1.56 NNN (Triple Net Lease). This decrease may be attributed to the delicate balance between supply and demand, tenant negotiations, and broader economic factors that impact the pricing dynamics of industrial properties in the San Gabriel Valley. 

Within the Pomona Industrial Market, warehouse buildings in the fourth quarter of 2023 had an average sale price of $308.76 per square foot (PSF). This figure provides valuable insights into the local market's pricing dynamics, reflecting the perceived value of industrial properties in Pomona during that specific quarter. 

In the neighboring City of Industry, the average sale price per square foot for warehouse buildings stood higher at $351.68. This higher price point suggests that the City of Industry maintained a premium position within the San Gabriel Valley, potentially due to factors such as strategic location, specialized facilities, or a higher level of demand in that specific submarket. 

Looking at the San Gabriel Valley Industrial Market as a whole, the average sale price settled at $304.52 PSF during Q4 of 2023. This comprehensive figure encompasses the performance of various submarkets within the San Gabriel Valley, highlighting the overall pricing trend for industrial properties across the region. 

In summary, the fourth quarter of 2023 witnessed an increase in available space in the San Gabriel Valley Industrial Submarket, coupled with a slight decrease in average rents. The variations in average sale prices across specific markets, such as Pomona and the City of Industry, add complexity to the overall real estate landscape. Stakeholders and investors may find value in analyzing these trends to make informed decisions in response to the evolving dynamics of the San Gabriel Valley's industrial real estate market.

The industrial real estate landscape in Orange County has experienced a notable shift in the fourth quarter of 2023, marked by a noticeable impact on rental dynamics. The moderation in tenant demand has contributed to a increase in vacancy rates during this period thereby leading to a deceleration in rent growth. This shift in market dynamics has implications for both property owners and tenants, shaping the overall economic landscape of the region. 

One of the noteworthy industrial real estate transactions during Q4 of 2023 was the acquisition of 7050 Village Drive in Buena Park, CA, by Buchanan Street Partners. This move underscores the strategic investment decisions being made in response to the evolving market conditions. Additionally, Home & Body Co.'s leasing of 5800 Skylab Road in Huntington Beach, CA, reflects ongoing activity with industrial real estate warehouse buildings, albeit with a focus on leasing arrangements. 

Analyzing specific areas with Orange County warehouse and industrial properties, the sales prices have exhibited distinct trends. Huntington Beach, for instance, has seen an average price of $380.00 per square foot (PSF) over the past year. This figure provides valuable insights into the relative strength of the market in this particular locale. In comparison, Garden Grove has experienced a slightly lower average sale price at $320.00 PSF, indicating variations in the pricing dynamics across different parts of the county. 

Furthermore, lease rates with Orange County industrial properties averaged $1.58 per square foot during the fourth quarter of 2023. This figure serves as a benchmark for property owners and tenants alike, offering a glimpse into the prevailing economic conditions shaping leasing negotiations. The asking lease rates provide crucial information for businesses seeking commercial spaces, influencing decisions on location and affordability. 

In summary, the industrial real estate landscape in the Orange County market is adapting to changing demand patterns, with notable transactions and pricing trends providing valuable insights for industry stakeholders. As the market navigates through these shifts, strategic decision-making and a nuanced understanding of local dynamics will continue to be key elements for success in the region's real estate sector.

1. Vacancy Rate Increase in South Bay Industrial Market: 

• The South Bay Industrial market has experienced a year-over-year increase of 250 basis points in vacancy rates, reaching 3.9%.
• This uptick suggests a change in the demand and supply dynamics within the industrial sector of the South Bay.

 2. Sublease Transactions in Industrial Leasing: 

• Out of the 87 industrial lease transactions in the 4th quarter, 17.2% were sublease transactions.
• The prevalence of subleases in the industrial sector underscores a strategic approach by tenants, potentially driven by the need to optimize existing space or adjust to evolving operational requirements.

 3. Tenant Responses to Scarcity in Industrial Spaces: 

• Faced with continued scarcity, many industrial tenants in the South Bay have chosen to renew existing leases or implement efficiency measures within their current space.
• This strategic response has contributed to a cooling effect on the market, leading to a 3.2% year-over-year decrease in industrial lease rates.

 4. Larger Decline in Industrial Lease Rates for Direct Spaces: 

• The industrial lease rates for direct spaces have seen a larger quarter-over-quarter decline of 11.25%.
• This pronounced decrease indicates heightened competition and negotiation dynamics in the industrial leasing market, likely influenced by increased vacancy rates and tenant strategies.

 5. Landlord Concessions in Industrial Leasing: 

• The decline in industrial lease rates and the competitive landscape have prompted landlords to make some concessions to facilitate deals.
• Concessions may include adjustments in terms, incentives, or other favorable arrangements to attract and retain industrial tenants.

 6. Industrial Sales Transactions: 

• Industrial sales transactions have experienced a decline in the average number, dropping from a quarterly average of 20 to 13.
• Additionally, both the average and median industrial asking sales prices have decreased quarter over quarter, reflecting a softening in the industrial sales market.

 7. South Bay Industrial Market Positioning: 

• Despite the observed trends, the South Bay Industrial market remains 4.4% below the 20-year national average industrial vacancy rate.
• The areas surrounding the port continue to be more optimal for most Industrial operations, indicating a sustained high demand in the foreseeable future.

 8. Additional Reports for Midcounties, Central (Los Angeles), and Inland Empire Industrial Markets: 

• The report includes insights into the other industrial markets of Midcounties, Central (Los Angeles), and Inland Empire, providing a comprehensive view of the broader industrial landscape in the region.

In summary, the South Bay Industrial market is navigating through changes with increased vacancy rates, strategic tenant responses, and shifts in leasing and sales dynamics. Despite these trends, the market remains below the national average industrial vacancy rate, with certain areas, particularly around the port, expected to continue experiencing high demand. The inclusion of reports for other industrial markets enhances the overall understanding of the industrial real estate landscape in the region. If you have specific questions or would like to explore particular aspects further, feel free to let me know!