Not hearing much about industrial real estate these days, are you? Essentially the SoCal Industrial real estate market is floating along. If that’s all you need to know, there you are. Going deeper, the pace of new additions for industrial space has moderated over the past six months, according to the recent Allen Matkins/UCLA Anderson California Commercial Real Estate study. Only 1/3 of those surveyed in Southern California and 2/3 from the Bay Area expect to be engaged in developing projects during the next year, with planned additions expecting to meet demand by 2016.
Industrial space has two distinct submarkets, manufacturing and warehousing. Both SoCal and the Bay area offer a combination; San Francisco, Silicon Valley and Orange County can be broadly characterized as being more heavily manufacturing, the East Bay, and Los Angeles a mix of the two and the Inland Empire by warehousing.
The biggest economic forces in the state’s industrial markets are California manufacturing, the export of goods to Asia and Mexico, and consumer goods from the manufacturing centers of Asia brought into the U.S. through the California’s ports.
The lackadaisical sentiment among buyers and developers has been going on all year. Pundits forecast that Southern California occupancy rates will diminish through 2016. (Influenced by Governor Rick Perry’s go Texas ads?), but rental rates will remain firm. Lower occupancy and firming rental rates imply an equilibrium with new additions to the stock of warehouses and factories keeping up with demand. It also predicts that the rate of growth in industrial space construction will slow in the 2016-17 time frame.
California’s sluggish industrial development projections are, as always, ahead of the rest of the country. Nationally, Reuters reports U.S. that industrial production rose slightly more than expected in June, and noted that in the second quarter, as a whole, industrial output rose 0.6%. . They called the uptick, “A welcome sign for an economy that appears to have slowed sharply in the second quarter.”
Officials at the Fed look at the utilization measures as a signal of how much slack remains in the economy, and how much room growth has to run before it becomes inflationary.
Short term projections for industrial space are hampered by the slow growth of foreign demand for U.S. goods and the frugal U.S. consumer demanding higher quality, and not increased quantity of foreign manufactured goods. These elements may lead to slower growth in the demand for industrial space in the near future.
Port traffic at LA/Long Beach (about 36% of U.S. port traffic, per Zepol data) was up by 1.3% year-over-year, yet it remains 3.1% below its pre-recessionary average. Importantly for warehouse demand, containerized imports were up by 5.3% in the past year.
For more information please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – firstname.lastname@example.org or 310.392.1211, and let us move forward together.
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