The Road To Recovery

The disruption to the world from the COVID19 pandemic changed our local supply chains and consumer consumption patterns. With most consumers transitioning to online purchases, this has created a strong demand for Industrial Real Estate that warehouse and distribute these goods, quite the opposite for the office and retail sectors. The vaccine roll-out has given the world hope and optimism for a speedy recovery.

The direct industrial vacancy rate in the Los Angeles/ Long Beach marketplace remained steady at 1.7% for the 1st Quarter 2021. The vacancy rate this time last year was 1.5%, which shows the lack of space in the area. Asking rents remained flat again in the 1st Quarter 2021 at $1.11 PSF. Property owners continue to put upward pressure on lease rates because Tenants are willing to pay a premium to secure their space. The expectation gap between Tenants/Buyers and Landlord/Sellers have grown to a point that is unsustainable in the long term and likely contributes to the decline of deal volume, year over year.  The average sale price jumped in the 1st Quarter 2021 to $180 PSF, up 12% from the previous quarter. Lee & Associates believes this is due to the lack of Class A property available for purchase, as well as the difficulty in completing deals due to access to governmental assistance. In regard to necessary approvals for occupancy and tenant improvements, municipality/governmental cooperation has been increasingly difficult and delayed due to office closures as a direct result from the pandemic. Net Absorption was negative with 122,652 SF added to the market, down from 254,943 SF last quarter. Developers continue their struggle in finding suitable repositioning projects as only 1,029,763 SF was under construction this past quarter. Total sales volume was down $87.3 Million, compared to 4Q 2020 which was at $165.02 Million.

Amazon seems to be an unstoppable force as they’ve tripled their ‘last mile’ hubs in in Southern California forcing other e-commerce competitors to keep up but also encouraging growth of supporting fulfillment businesses. Amazon started 2020 with 9 local distribution hubs, now they’re up to 32. A few you may recognize:

·        -9300 Rayo Ave, South Gate (213,000 SF)

·       -2751 Skypark Dr, Torrance (148,000 SF – Former Costco)

·        -950 Francisco St, Torrance (147,200 SF)

·        -6400 – 6450 Katella Ave, Cypress (146,000 SF – Former Mitsubishi HQ)

·        -14600 S Broadway Ave, Gardena (60,000 SF)

·       - 2400 Marine Ave, Redondo Beach (20,000) 

Amazon is close to their goal of having a warehouse within 20 miles of every major US Consumer; Amazon’s purchase of Whole Foods was a monumental step in execution here.

Economists surveyed by The Wall Street Journal project U.S. gross domestic product—the value of all goods and services produced—will grow 6.4% this year, measured from the fourth quarter of last year to the same period of this year. That would lift output to nearly 4% above its pre-pandemic level measured in the fourth quarter of 2019. Meanwhile, the economists expect employers to add 7.1 million jobs in the 12 months ending in December 2021, a gain of 5%. That would leave employment 1.6% lower than in the fourth quarter of 2019. “Leo Feler, a UCLA senior economist says, “…the combination of increased vaccinations and the Biden administration’s $1.9 trillion COVID-19 relief package are the driving optimistic forces behind the forecast for 2021…According to the national forecast, there will be 6.3% growth in 2021, 4.6% growth in 2022 and 2.7% growth in 2023…” The forecast predicts higher interest rates, a cooling residential market, a correction in the stock market and less hiring. It will take time for these factors to play out and trickle down to our local economy. In the meantime, 2nd Quarter 2021, will be a great opportunity for Property Owners to put their properties up for sale to capture historic sale values. Interest rates are currently still historically low for buyers. As seen last quarter, existing Industrial properties for lease or sale will be difficult to find, while newer facilities will continue to be needed to support fulfillment centers and the move towards electronic retailing. Despite the background noise globally, market signals locally remain positive heading into 2Q 2021. Contact your Local Lee & Associates specialist for more information regarding your submarket and guidance in how to navigate through these ever-changing times.