What The Biggest LA Industrial Leases Of 2022 Say About The Market
Though industrial real estate is expected to see a slowdown in the near future, it's important to note that the pullback comes after some record highs.
Despite inflation hitting a decades-long high and interest rates consistently rising throughout 2022, asking rents in the Los Angeles market were up 23.6% year-to-date, according to a third-quarter report from JLL. All LA submarkets have asking rents at or over $1.50 triple-net. Last year those same asking rents crossed the $1 triple-net threshold, JLL said.
Total vacancy in the third quarter of the year in the Los Angeles market was 0.8%, JLL found. It's impossible to know what exactly will happen in the coming months and year, but there are some takeaways from the top leases here that might offer glimpses of what's to come.
Here are five of the year's top leases in the Los Angeles market, not including the Inland Empire.
Tenant: Ryder Logistics
Location: 21921-21931 Industry Way, City of Industry
SF: 1M SF
Tenant: APL Logistics
Location: 408-488 Brea Canyon Road, Walnut
SF: 400K SF
Tenant: Yong Fi
Location: 5091 Fourth St., Baldwin Park
SF: 324K SF
The three top leases were signed by tenants that are in the logistics and transportation business and were all roughly in the San Gabriel Valley, representing a trend that emerged over the year.
"The 3PLs kind of run this market," JLL Executive Vice President Danny Reaume said of the San Gabriel Valley.
The stock is on the older side, but it can still be functional for what he called "transloading" — essentially, a stop-off for things coming in from the ports where products can be assessed and directed to their next stop, whether that's to a van that takes it to a customer's door on the Westside or to a truck that heads east to the massive warehouses in the Inland Empire.
Ryder Logistics' space has the unique distinction of being a spec-built. It's still under construction.
"It's very rare for 3PLs to take spec space, unless they are the Ryders of the world," Reaume said.
Big-name, credit logistics tenants like Ryder have the confidence that their customers will continue to need space from them and confidence in the future of their company in general, he said.
Tenant: WestRock Co.
Location: 18021 Valley View Ave., Cerritos
SF: 309K SF
Tenant: United Natural Foods
Location: 15015 Valley View Ave., Santa Fe Springs
SF: 303K SF
The other top leases are across industries. WestRock Co. is a packaging manufacturer, while United Natural Foods is a publicly traded wholesale food distributor with an emphasis on healthy and organic products.
United Natural Foods sold the space it is leasing to a Brookfield entity for almost $68M in 2020 through a sale-leaseback deal in an effort to reduce its real estate footprint.
Reaume anticipates that, because there isn't much square footage in the construction pipeline and because the market is dominated by older, less functional buildings, demand in the core Los Angeles market will be driven by credit tenants.
After what he described as "peak season for the last two years," Reaume said that yes, there will be some changes in the coming year, but it will resemble a more "normalized demand."
"In the past, people would take any building they possibly could and I don't see that happening [anymore]," he said. "We're going to continue to see a lot of demand for the right buildings in the right location."
