Pricing uncertainty due to ongoing trade tensions has been causing some disruption to the steady flow of goods from Los Angeles area ports into regional warehouses, resulting in increased sublease activity as companies are trying to stay ahead of the effects from tariffs. Demand for space increased as importers frontloaded purchases, requiring additional space for storage. As the flow of goods normalizes, unneeded space is placed on the market for sublease and quickly gobbled up by companies seeking expansion space for short-term seasonal needs and additional drop storage.

Hence, sublease activity jumped over the past six quarters in the Greater Los Angeles/Inland Empire/Orange County (GLA/IE/OC) region, accounting for 11.9 million sq. ft. or 13.2% of total warehouse leasing activity. That is an increase of 31% compared with the six quarters prior to intensified trade talks.

Strong overall demand for warehouses has steadily dwindled total available space to 5.3% as of Q2 2019, an all-time low. Unlike subleasing activity increasing as a result of tenants downsizing ahead of slowing economic growth, current industrial subleasing activity in the region is driven by strong demand and an increased need to hedge against possible disruptions. Depending upon future trade policy expectations, sublease activity will remain a key strategy to better manage the flow of goods and protect against future political and trade disruptions.