Demand for industrial space near busy ports continues to soar

Demand for industrial real estate, especially for distribution and logistics space, remains elevated. Near the country’s most active ports, competition is astronomical, according to Yardi Matrix.

The ongoing e-retail surge helped push in-place rents for U.S. industrial space to an average of $6.47 per foot in March, up 2 cents month over month. Rents have grown 4.4% over the past year. Tenants seeking new leases are paying quite a bit extra, with the average price of a lease signed in the past 12 months at $7.35 per square foot, 13.6% higher than the in-place rent average.

Port markets are seeing especially large markups both for in-place and new-lease rents. In Southern California, home of the ports of Los Angeles and Long Beach (the busiest in the U.S.), the premium is particularly stark as Los Angeles, Orange County and the Inland Empire are at or near the top of the metrics for rent and occupancy rates. The average industrial rent in Orange County in March was $11.80 per square foot, the highest among metros tracked by Yardi, while Los Angeles topped the list in annual rent growth with a 6.8% increase. Vacancy rates in these three markets are tight, with the Inland Empire at 0.7%, Los Angeles at 2.1% and Orange County at 3.4%.

A lack of available space has driven up new-lease rents in the region. New leases in Orange County, for example, cost $3.78 more per foot than the market average. In Los Angeles, the average premium is $3.04, while in the Inland Empire, new leases cost $2.89 more.

Meanwhile, there’s a distinct lack of land available for new space to be built and the pipelines of new space on the way are lean. In Los Angeles, only 3.4 million square feet of new industrial space is under construction, or about 0.5% of the existing stock. In Orange County, 2.3 million square feet — 1.2% of existing stock — is being built.

As a result, investors looking for industrial property in Southern California find themselves in torrid competition and sales prices are growing rapidly. From 2019 through 2021, Yardi reported, the average price per square foot of an industrial building has risen 60% in the Inland Empire, 54% in Los Angeles and 53% in Orange County.


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