Southern California industrial rents may have peaked

Rents for industrial properties across Los Angeles, Orange County, and the Inland Empire experienced tremendous growth between 2020-2022 stemming from the pandemic. Many occupiers were adopting a “Just-In-Case” business model, and as a result, pushed demand for industrial space to all-time highs.

As of late, leasing activities have died down and occupiers no longer need additional space for inventories. Leasing activity can be seen at lower levels across the region and occupiers have become more selective on their space requirements, impacting rent growth in 2023. Los Angeles and the Inland Empire experienced negative rent growth for the first time since the pandemic, dropping 0.8% and 1.4%, respectively.

We anticipate rental growth to decline or remain flat in the coming quarters and could potentially see leasing activities pick up in 2024. Occupiers who may have been sitting on the sideline waiting for rates to come down may make the decision to jump back into the market to take advantage of the price decreases.

“We are starting to observe a discernible decrease in lease rates as a strategic measure to ensure transactions are happening and to maintain tenants in our market. Concurrently, we are seeing an upward trend in vacancy rates, exerting increased pressure on landlords and property owners.” says Luke Tatman – Industrial Specialist for the Inland Empire.