LA County Industrial Market Leasing and Sales Conditions Shifted in 2024 as Vacancy Rates Rise
J.C. Casillas
Managing Director, Research and Public Relations at NAI Capital Commercial
Record-high vacancy rates, increased sublease availability, and a softening of rent growth signal a significant transformation in the industrial market as developers and tenants navigate a new landscape.
By J.C. Casillas , Managing Director of Research at NAI Capital Commercial
MARKET OVERVIEW
The industrial market in Los Angeles County continued its realignment in 2024, with vacancy rates shifting from the "tight as a drum" conditions of prior years. Completed construction added approximately 5.1 million square feet in 2024, marking an 11.1% decline from 2023. This contributed to a 160-basis-point year-over-year increase in the vacancy rate, which now stands at 6.0%—a record high for the county.
The growing supply of industrial space and new developments have lengthened lease-up times. Over the past two years, Los Angeles County delivered nearly 10.9 million square feet of completed construction, while absorption turned negative. Compared to Q4 2022, there is 34.3 million square feet more vacant industrial space. These trends highlight a significant shift in the industrial market's trajectory.
Developers had previously raced to meet soaring demand for warehouse space driven by e-commerce and port activity. According to the latest data from the Ports of Los Angeles and Long Beach, combined TEU cargo volumes—a key indicator of industrial space demand in Southern California—increased by 22.1% year-to-date as of November. This steady uptick in port activity continues to underpin regional logistics and supply chain operations, reinforcing the long-term demand for industrial space.
Currently, 4.2 million square feet of industrial space is under construction, reflecting a manageable pace with a 22.5% quarterly decline and a 38.0% drop compared to the same period last year. Developers are responding to shifting market dynamics, balancing new supply with evolving demand.
Rapid rent growth, once the primary driver of new construction, has softened. By year-end, the average asking rent fell 1.4% quarter-over-quarter to $1.45 per square foot triple net, marking a 13.7% decline from Q4 2023. On the sales side, year-to-date sales volume, measured on a square-foot basis, dropped 33.5% from the prior year. However, the median sale price per square foot rose 5.7% compared to 2023.
TRENDS TO WATCH
Lower leasing velocity signals a shift for developers, investors, and landlords while providing tenants with opportunities to negotiate new leases in 2024. Nevertheless, e-commerce continues to thrive, as warehousing of goods sees an increased number of options. In 2024, companies that actively reduced excess warehouse space as part of the pandemic supply chain adjustments left the industrial market with an all-time high in available sublease space. This resulted in a 20.0% increase from the previous quarter and a 44.4% increase from the same time last year, totaling approximately 12.8 million square feet of available sublease space by year-end. Furthermore, nearly 1.9 million square feet of total available sublease space was placed on the market in 2024. This abundance indicates that companies with warehousing requirements now have a variety of options.
With lower economic growth, the increase in available industrial space offers tenants more choices, as prices and elevated interest rates have affected industrial building leases and sales. In the fourth quarter, leasing volume experienced a 22.7% decline quarter-over-quarter, while the year-to-date total closed 4.0% above last year, totaling close to 39.5 million square feet year-to-date. Meanwhile, fourth-quarter sales volume rose 39.3% quarter-over-quarter, but the year-to-date total was 33.5% below last year, totaling more than 13 million square feet year-to-date—indicating the shift toward leasing versus sales.
In Los Angeles County, the median cap rate for industrial properties in 2024 increased by approximately 10 basis points from the previous year, closing the year at a median of 5.4%. This is noteworthy given the shifting fundamentals, with the market responding to the Fed's three rate cuts in 2024. The combination of rate cuts tapering off, as the Fed expects to lower rates more slowly in 2025, elevated interest rates, a resilient economy, and moderating demand will continue to impact pricing, leasing, and sales.