On the list of 2014 New Year’s resolutions – invest in industrial real estate in the Los Angeles area. The experts say rents are expected to grow by more than 25% in the next four years…2018 will be so prosperous.
Here’s why the price hikes are coming…
1. The National Retail Federation projects 2013 holiday sales to reach $602.1 billion. Analysts tracking holiday sales expect online shopping to account for nearly 40%, of all spending this year, This is up from 26% in 2012, and well ahead of expectations…which is why UPS was having such significant delivery issues in the 2013 holiday season. Nobody anticipated a 14% jump in deliveries.
Industrial space is being designed and located where it can meet the needs of online retailers with ever faster delivery times.
2. The Panama Canal Expansion
The Third Set of Locks Expansion of the Panama Canal doubles the capacity of the Panama Canal by 2015 by allowing more and larger ships to transit.
The $5.2 billion project creates a new lane of traffic along the canal by constructing a new set of locks. Ships as large as 12,000 or more TEUs (20-foot equivalent units—a measurement of container ship capacity) will be able to fit through the new locks vs. the 5,000 TEU ships that currently transit the Canal (which opened in 1914). The Canal is owned by Panama and is currently used more for Latin American shipping. The country anticipates that the expansion of the 100-year-old canal to make Panama a first-world country.
Pundits, forecasting the impact on our local ports have concluded that the Ports of LA and Long Beach are the most efficient port system in America and will “remain the leader for the foreseeable time,” thanks to our state-of-the-art ports and an efficient supply chain.
Locally construction to accommodate the expansion includes the $649.5-million replacement for the Port of Long Beach’s Gerald Desmond Bridge, to be completed in 2016.
It’s not just here in Metro Los Angeles, where our economy is larger than Saudi Arabia.(We’re top 25 on a worldwide scale.) The demand for industrial real estate is rising across the country, especially around ports on the East and West Coasts. The experts say demand is strongest in Los Angeles, Miami and New York-New Jersey. The growth of e-commerce is having significant impact on the industrial market as the trend towards bigger and more efficient distribution centers has resulted in a shortage of class A warehouse space over 500,000 sf in the nation’s logistics hubs.
During the third quarter 2013, five large Industrial buildings totaling 767,673 square feet were completed in the Los Angeles market area. Total Industrial inventory at the end of 3Q 2013 was 988,123,598 square feet in 36,936 buildings, according to Costar in their most recent market report. The Flex sector consisted of 61,485,351 square feet in 2,810 projects. Within the Industrial market there were 4,830 owner-occupied buildings accounting for 195,937,860 square feet of Industrial space.
Despite steady demand, rents overall remained at stubbornly low levels, in part because the recovery favors newer product. After marginal growth in 2013, the experts anticipate that 2014 will see strong appreciation in most major markets.
Los Angeles, because of our significant land constraints and relatively little new construction, will be the big winner. Warehouse vacancy is at its lowest rate in four years, declining ten quarters in a row after peaking in the first quarter of 2010. Los Angeles and Orange County’s rents are expected to grow by more than 25% in the next four years.
For more information please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – or 310.392.1211, and let us move forward together.