Southern California Industrial Real Estate Market Heats Up: Vacancy Rates at Historical Low

By: Sharjeel Sohaib

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May 16, 2022

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Southern California Industrial Real Estate Market Heats Up

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The industrial real estate market in Southern California has remained unusually tight in the first three months of 2022, owing to global supply chain challenges and rising consumer demand. Whereas vacancy, average asking rents, and construction achieved new highs following the greatest year of market fundamentals in the Inland Empire’s history.

We Covered this in our Weekly Wire Roundup

1. Southern California – Industrial Market Overview

The total vacancy rate, which was already among the lowest in the country, increased ten basis points (bps) from the previous quarter to only 1.6 percent across the area. However, this is still down 150 basis points from the 3.1 percent overall vacancy rate recorded a year earlier. Despite ongoing tight market circumstances, the Southern California industrial sector faces uncertainty in 2022 due to geopolitical issues and a 40-year high in inflation, which is a negative for consumers and, ultimately, industrial demand.

2. High Rentals for Warehouses

The first quarter’s net absorption was 5.9 million square feet, down 43 percent from the 10.4 million square feet reported a year earlier. With 4.3 million square feet of net absorption, the Inland Empire dominates the overall market. Although net absorption is expected to decrease in 2022, this hasn’t stopped landlords from raising asking rental prices. The region’s total rental rate is currently at $1.20 per square foot, up 19% year over year.

3. New Supply Thins Out

Even though over 42 million square feet of industrial space are currently under construction as of January 2022, the Southern California industrial market remains severely supply-constrained, as current development activity accounts for only 3.2 percent of the region’s massive industrial real estate base. As previously said, the industrial market in Southern California continues to be quite beneficial for landlords, with record low we can observe levels. However, rising macroeconomic concerns about inflation, energy prices, and consumer spending may negatively influence future industrial demand.

Key Takeaways from the Q1 2022 – Industrial Market: Southern California

  • In Southern California, 42.5 million square feet are under development, the greatest ever.
  • Over the last year, the asking rent has increased by 18.8%.
  • The lowest submarket vacancy rate is 0.6 percent.

4. Inland Empire – Industrial Market Overview

Warehouse rents in the Inland Empire have reached new heights.

Average asking rents continue to grow at a breakneck pace, up 18.7% or $0.20 per square foot quarter over quarter. Vacancy in the region fell further by 20 basis points to 0.3 percent at the end of the quarter. Due to its 67 percent rental rise in a 12-month timeframe, the Inland Empire is no longer a considerably discounted alternative compared to the Los Angeles region. E-commerce and the Southern California ports remain the principal drivers of growth. As a result, the Inland Empire has established itself as the most sought-after market in the country.

5. Industrial Real Estate in the Inland Empire

  • The quarter ended with net absorption of 3.1 million square feet.
  • The construction industry is booming, with 32.4 million square feet under construction.
  • The average monthly rent has risen from $1.07 to $1.27.
  • Net absorption fell short of fresh supply for the first time in seven quarters.

Read the full report about the Inland Empire here

The Inland Empire is one of the largest big box industrial markets of the U.S, according to the latest research by CBRE, an American commercial real estate services, and investment firm. An industrial big box facility isΒ a warehouse/distribution center of 200K square feet or more space.

With major freeways, three airports, and a large railway network, the Inland Empire adds between 10 million and 25 million sq. ft. of new space annually Fortune 500 companies absorb that.

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