By Lilly Riddle
Vacancies and high negative net absorptions in the industrial sector pose challenges to the Central Los Angeles submarket, according to the Central Los Angeles Industrial Research Report 2024 Q1 by Colliers. Vacancies rose by 40 basis points in Central LA — which encompasses Los Angeles, Vernon and Commerce — hitting 10-year highs for both vacancy and availability across the region as a whole.
In Central LA, the vacancy rate rose from 2.5 to 2.9 percent quarter-over-quarter, according to 2024’s Q1 reports. The largest increase in vacancies was in Commerce, and the region recorded the highest availability rate since the first quarter of 2020 at 5.3 percent.
Negative net absorption has also increased, with 759,341 square feet — the city’s eighth consecutive quarter in the red. This figure went up and will likely remain high per the report’s estimate. The negative direction trend continues following four quarters of negative demand in 2023.
Demand in the market is less than expected, a continuation of a trend over the past two years. However, activity in the industrial space in Central LA primarily comes from the Vernon and Commerce submarkets, driving rents down. As a result, average asking rents have declined in Central LA, decreasing by $0.10 to $1.60. This marks the third quarterly decline in a row, the report states. In addition, the average cap rate for Central LA has continued to increase for the past four quarters and into 2024.
Major leases were underway this quarter, with five properties leased ranging from 54,000 to 87,000 square feet. The largest new lease, by South Gate Industrial Center, totals 87,038 square feet.
Despite these challenges, expected demand continues to drive development across the region. Central LA currently has more than 1 million square feet of space under construction, an amount of activity not reached since the first quarter of 2019, according to the report. Amid constraints on new industrial development in Central LA, the report states, developers estimate e-commerce renewed attention from potential tenants. There are four major developments in the region, ranging from 94,000 square feet to 253,000 square feet. The largest property is the Central Commerce Center, developed by Clarion Partners/REDA, estimated to be completed in the third quarter of 2024. The next two, totaling 210,000 and 185,000 square feet, are Bridge Point Vernon II and Bridge Point Vernon III, respectively, expected to be completed in the second quarter of 2024. The fourth development is Bridge Point Commerce I, which is 94,000 square feet, expected to be completed in the second quarter of 2024.
As a final point in the report, Colliers sees the industry exercising caution as a result of Federal Reserve interest rate uncertainties. Yet despite challenges across the market, Colliers sees the region recovering in the near future. This stems from its position as a top industrial submarket, adjacent to the largest industrial market in the country. Southern California will “surely maintain its position as a top industrial market, proving its long-term allure,” the report concludes.
