To the surprise of many, Los Angeles has not been witnessing an industrial recession. If anything, the Los Angeles industrial real estate market is resilient against any possible industrial recession right now. Strong employment growth, low vacancy rates, and the area’s strong manufacturing background are protecting Los Angeles against a market downturn.
The greater metropolitan area continues reporting increased population and employment growth. The LA Times wrote in September, “Since 2012, California has tended to grow faster than the nation as a whole, in part because of solid growth in the tech sector. The state did so again in August, with jobs up 1.6% from a year earlier, compared with 1.4% nationwide.” Locally, the LA area gained 7,500 new jobs in August.
Meanwhile, local market professionals continue to see historically low vacancy rates for industrial real estate despite a construction boom. Even though over 5.7 million sqft of industrial space is currently under construction, we have yet to reach a market balance between supply and demand. The Los Angeles industrial market is one of the largest in the United States, with over 1.57 billion sqft of space. Nonetheless, demand remains high in the area thanks to a push for more warehousing located near urban centers and Los Angeles’ manufacturing industry.
The Port of Los Angeles and the Port of Long Beach, two of the nation’s busiest ports, continue sustaining industrial needs. The flow of goods in and out of these ports remains strong, fueling the warehousing demand. In the first nine months of 2017, trade from Los Angeles’ port rose 4.9 percent, increasing to $211 billion in goods.
According to Collier, Los Angeles industrial market asking rates have risen to the highest points ever. Rental rates continue to rise thanks to the demand from retailers and manufacturers to strategically locate goods closer to urban centers and the ports.
We expect to see continued resiliency in the industrial market through 2018. Even if industrial real estate experiences a national downturn, all these factors should protect the Los Angeles market for the foreseeable future.