Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Industrial Markets to Watch. Not the largest or the most actively contested markets, the 2015 Industrial Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.
Top Industrial Market to Watch: Los Angeles / Long Beach, CA
The twin seaports of Los Angeles and Long Beach are the busiest in the United States, accounting for the largest complex of industrial space in the nation after Chicago. While the former currently receives more volume, the Port of Long Beach has invested heavily in its infrastructure, is post-Panamax ready, and can service container ships that will be too large to fit through the widened Panama Canal. After the prolonged contract dispute between the Port and the dockworkers’ union depressed activity from November 2014 through February 2015, shipping volumes rebounded in March. Across Long Beach and Los Angeles, container volume was 24% higher year-over-year, in part reflecting a heavy backlog.
On its own the most vital port of entry for goods traveling from Asia Pacific to the United States, the industrial market is booming in Los Angeles. Ships anchored off the coast of Southern California during the West Coast labor dispute, which otherwise might have traveled to British Columbia or taken the long route to the East Coast, underscored the irreplaceability of the Port of Los Angeles for the regional and national economy.
During the first quarter of 2015, LA ranked amongst the top markets in the country along several measures, including occupancy and rent growth rates, absorption, and property values. While occupancy and net absorption levels are strong, effective rents in Long Beach are not quite back to their peak. There is some worry that the departure of Toyota Motor from Torrance to its new North American headquarters in Plano, Texas may prompt others to seriously evaluate alternatives to Southern California. Such a trend is entirely speculative at this point. The more likely scenario has vacancy rates trending below 5%, supporting healthy rent growth, and competition for assets.
Afield from the ports, gentrification in LA’s Downtown Arts District has spurred warehouse-to-office and warehouse-to-residential conversions. As a result, about 300,000 square feet of industrial space was taken offline in 2014. While some artists and industrial tenants are staying put and railing against the changing of the neighborhood, more are southbound. Local market participants report that artists have been able to use the older industrial spaces in nearby Vernon and Commerce that are otherwise functionally obsolete for commercial industrial uses. At the other extreme, industrial REIT ProLogis recently renewed its commitment to the LA market by installing rooftop solar panels on 1.1 million square feet of its holdings in the area. The solar panels are expected to generate 4.2 megawatts of power that will be directed into the LA Department of Water and Power’s electrical grid as part of a county program to encourage renewable energy production.
To read more on Los Angeles / Long Beach and other top industrial markets, download the full version of the 2015 Industrial Market Update report here.
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