Mixed Signals

Signals from various sectors of the economy have been mixed. While Covid-19 continues to create complications in the local economy and employment levels are in flux, manufacturing, e-commerce, and cold storage segments are gaining strength.The Los Angeles/Long Beach industrial real estate market has consistently been resilient and has had strong demand, but our economy has new hurdles to overcome with reestablished restrictions for retail, restaurants, gyms and school closures. Demand for sale and sublease product has picked up slightly whereas, direct leases have leveled off.

The direct industrial vacancy rate in the Los Angeles/LongBeach Industrial Marketplace increased from 1.8% in the 1st Quarter to 2.4% in the 2nd Quarter 2020. Asking lease rates remained at $1.09 PSF in the 2nd Quarter with Tenants preferring to do short term leases. This likely new trend could be attributed to tenants securing short term contracts and many businesses being cautiously optimistic as they see how things play out in the worldwide economy. New product was delivered to the marketplace with absorption dropping by -1,588,457 SF. There was over a million square feet under construction during the 2nd Quarter, and in time we shall see the trickle-down effect showing the impact upon real estate values and vacancy.

During the credit crisis it took about 6 months to see the full impact on commercial real estate market. Consumers are purchasing goods online at a record pace. Supply chains are adjusting. E-commerce supports millions of jobs worldwide and helps keep industrial real estate in strong demand. Developers and investors continue to be attracted to the Los Angeles/Long Beach industrial real estate markets. The most notable projects are the Goodman Acquisition of 93 acres of a former Boeing C17 facility, and Bridge’s development of a former Paramount Petroleum site. Federal programs that were put in place like the Payroll Protection Program, SBA Cares Act and Disaster Relief Loans were key components to help the US economy. Many small businesses have been taking advantage of the 504 loans where the SBA is willing to pay for the first 6 months of payments funded prior to September 2020. These are great incentives for small business owners to close escrow as fast as possible. Give your SBA Lender a call to learn more about these government incentives.

Despite the challenging economic landscape, the California Legislative Committee is still pushing for Proposition 15 (Split Roll Tax) and SB 939 that are unfairly burdensome and must be stopped to prevent the California Economy into a complete free fall. Proposition 15 is aimed at destroying Proposition 13 protection for commercial real estate. California Senate Bill 939 looks to put a moratorium on all evictions and unlawful detainer actions against any qualifying commercial tenants defined as eligible Covid-19 impacted commercial tenants. Lee & Associates recommends contacting your local representative about voting no on SB939, and Proposition 15 November 2020.

The Los Angeles/Long Beach Industrial real estate market is home to the country’s largest port complex (Ports of Los Angeles and Long Beach) and Los Angeles International Airport, which distributes much of the import-export cargo to and from ASIA to the US. The central bank and Government are willing to do whatever it takes to limit further damage to the US economy, which should bolster small businesses and consumers once the quarantine is lifted. Lee & Associates is committed to our clients during these challenging times and will continue to work safely to serve the real estate needs of our clients during the Coronavirus pandemic. Our professionals will remain available with online meetings, phone and email. Contact your local Lee & Associates real estate agent for the best strategy for your situation in navigating through the Corona Virus (Covid-19). Lee & Associates cares about everyone’s safety by investing in a new state of the art virtual tour system. This allows prospective buyers and tenants the ability to do a 3-D tour of properties we have listed without having to take the risk of whether or not a space has been clean to the satisfaction of the CDC guidelines. Message me for a full copy of our 2nd Quarter Market Report.

Stay healthy, safe and positive – we are all in this together.

-Brandon Carrillo, Principal