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I wanted to officially welcome everyone back and congratulate you all on a strong year despite challenging market conditions in both our business’s leasing and capital markets sectors. Our heartfelt thoughts and prayers go out to our employees, clients, and partners throughout our region who these horrific fires have impacted. We continue to pray for your safety, peace, comfort, and well-being, as well as for your families, friends, and loved ones. We also thank our brave first responders working tirelessly in difficult conditions to protect us. Thank you all for your generosity and support in stepping up to help those in need. The stories and acts of goodwill, generosity, and unity are truly exceptional. As I have stated before, the character is revealed during times of trial/adversity, and I am so thankful to be surrounded by the absolute best people in the industry. THANK YOU!
As we reflect on 2024 in the Southern California industrial market, the first half of the year was relatively active, particularly in bulk transactions, as Amazon made several significant plays throughout our region. As the year, progressed corporate America pulled back, leaving 3PLs (many of them foreign-based) as the dominant player in the leasing market. A significant portion of our leasing activity was driven by consolidations as companies aimed to right-size their networks. Vacancies have ticked up, average lease terms have shortened, annual rent escalations are normalizing, taking rents have declined, concessions are increasing, and the amount of available sublease space in certain markets is well above historical averages. Capital markets and investment activity mirrored the fundamentals of the leasing market, with investment volume down 27% year over year in Southern California, and off as much as 50% in markets like the Inland Empire.
As we kick off 2025, ‘cautious optimism’ seems to be the phrase most embrace. Build-to-suit activity is up. Corporate America is back touring the market with active requirements, and industries like defense, aerospace, automotive, data centers (and related components), food and beverage, and specialized manufacturing are active in the market. Investors are sensing that lease rates are bottoming out in key markets like the Inland Empire, presenting opportunities for investors in an environment where construction starts and completions are down by 35% or more. A slight tenant demand improvement will bring both private and institutional capital off the sidelines, contributing to a more active 2025.
Strengths/Highlights:
- The market is still performing relatively well from a demand standpoint (nationally), driven by strong consumer spending/demand as well as government spending.
- Loaded import TEU volume at the Ports of LA/Long Beach is up 22% YTD year-over-year (record quarter) as shippers allocate a higher percentage of their products to the West Coast.
- Throughout Greater Los Angeles, Orange County, and the Inland Empire, we witnessed a 20% year over year increase in the total number of new lease transactions and a 21% increase in the total square footage leased over 2023.
- Build to Suit activity and user sales up significantly.
- Despite elevated interest rates, investors seem motivated to deploy more capital in 2025 than in 2024. Many feel we are beginning a new cycle as lease rates and values may have “troughed.”
- The Inland Empire ranked #1 in the U.S. for bulk leasing at 56 million SF for the year, representing 11% of the bulk leasing in the U.S., a 56% increase over 2023
- Leasing was most active below 100,000 SF (10-50,000 SF) and from 700,000 SF to 1.2 million SF.
- From a national perspective, leasing finished at 838 million SF for the year, up 6% over 2023 and the third best year on record.
Challenges/Threats:
- The transaction process and deal cycle take much longer with less urgency on the part of the tenant.
- All four markets we track throughout So Cal posted negative net absorption in Q4, and lease rates declined an average of 9% percent year over year.
- Despite strong leasing nationally, net absorption was only a positive 151 million SF in 2024, the lowest since 2010.
- The Inland Empire posted the largest annual rent decline in the country in 2024, at 20.6% on average.
- The vacancy rate on a national basis finished the year at 6%, the highest since early 2015.
- We continue to see significant move-outs in older buildings. For the year, the U.S. posted 88 million SF of negative net absorption in buildings built prior to 2000.
- For institutional landlords, tenant retention rates are off 20% on average as tenants downsize, exit California, or find space within their existing networks.
- Weaker credit of newer, foreign 3PLs could present move-out risk for landlords as beneficial occupancy burns off.
Outlook:
- Vacancy and declining rents will continue in the first half of 2025, given the amount of space coming up for renewal in the next few years (driven by pandemic run-up in demand and absorption) and the amount of sublease space on the market.
- Construction starts and completions will significantly decrease as most developers wait for fundamentals improving before putting land into production.
- Landlords will become occupancy focused
, and will be employing creative lease-up strategies like phased occupancy and more aggressive concession packages (teaser rates, free rent, increased TI allowances, moving allowances, sending tenants unsolicited proposals, etc.) to get their properties leased.
- User sales will continue to be a bright spot as values on vacant buildings have declined.
- Class A assets with higher clearance will attract corporate tenants, and there will be a broader disparity in lease rates between Class A and Class B buildings.
- Expect landlords to engage with credit tenants earlier on renewals (1-2 years).
- 3PLs will continue to be a very active tenant segment as larger companies outsource and favor flexibility.
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Top Sales of Q4 2024
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Property
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Size (sq. ft.)
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Buyer
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Seller
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1680 Eastridge Ave, Riverside
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449,040
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Ares Management
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Ross Stores
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25892-25902 Towne Centre, Foothill Ranch
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310,067
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Ares Management
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Morgan Stanley/
LBA Logistics
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2501 Rosecrans Ave, Los Angeles
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300,217
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Rexford Industrial
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JPMorgan Chase
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918 Stimson Ave,
City of Industry
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282,377
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Ardmore Home Designs
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LBA Logistics
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Top Leases of Q4 2024
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Property
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Size (sq. ft.)
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Lessor
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Lessee
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19705-25 Business Pkwy, City of Industry*
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1,300,000
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Majestic
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GE Appliances
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27582 Pioneer Ave, Redlands*
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800,444
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Prologis
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21733-21749 Baker Pkwy, City of Industry*
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800,000
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Majestic
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Jakk's Pacific
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151 Marcellin Dr,
City of Industry
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606,480
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Majestic
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Win.It America
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3412 Manitou Ct,
Jurupa Valley
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560,025
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Link Logistics
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White Horse Logistics
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12300 Riverside Dr,
Mira Loma
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557,500
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TIAA-CREF
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CJ Logistics
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5450 E Francis St, Ontario
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480,000
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James Campbell Trust
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Armstrong Logistics
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2100 Yates Ave,
Los Angeles
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374,370
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Prologis
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Source Logistics
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50 Icon, Foothill Ranch*
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307,781
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Prologis
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Hampton Products
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| SoCal Supply Chain News | WCL Consulting |
- Port operations resume after a brief strike at East & Gulf Coast Ports.
- New CA sate-wide warehouse development regulations signed into law (AB-98).
- CA Legislature passes bill expanding jurisdiction on new warehouse development.
- The Hub Group to form joint venture with EASO for cross-border trade.
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GLAOCIE Key Takeaways from Q4 2024
- Greater Los Angeles saw leasing accelerate amidst space givebacks and declining rental rates.
- Despite rising vacancy, rent growth and new construction suggested stabilization in Orange County.
- The Inland Empire saw submarkets diverge as the IE West vacancy decline spotlighted early recovery.
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Legislative Update
- Assembly Bill 98 will negatively impact new development, especially in the “warehouse concentration region” of the Inland Empire
- AB 98 includes expanded setbacks from sensitive receptors, buffers, separate truck entrances/routes, replacement of demolished housing, and elevated building standards).
- Existing stock and entitlements will become increasingly valuable.
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Quarterly Industrial Market Reports - Q4 2024
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Please feel free to contact me directly with any questions you may have. We want to make sure this update is as useful and relevant as possible to both our clients and professionals. If you have suggestions for additional content or areas of improvement please let me know. Thank you
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Ian Britton
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Senior Managing Director
T +1 909 418 2002
ian.britton@cbre.com
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Rick Cozart II
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Senior Field Research Analyst
T +1 909 418 2000
rick.cozartii@cbre.com
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Address: 2575 East Camelback Road, Suite 500 Suite 700, Phoenix AZ 85016
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