Industrial Insights for OC / LA / Prologis - Newsletter Article
Orange County Industrial Market
Orange County's industrial sector faces modest downward pressure with limited new Class A inventory arriving. Sublease space is anticipated to enter the market following Q1's positive absorption period, with rents expected to remain flat or decline slightly.
Historical context from the 2007-2009 recession shows severe disruption: Orange County's vacancy rate climbed from 4.1% to 7.5%, and empty space nearly doubled to 20.9 million square feet. "Average asking rents skidded 26%" during that downturn, with recovery taking years.
Q1 2020 showed positive momentum with 501,528 square feet of absorption. North Orange County led performance, driven by major leases including a 1 million square foot UNIS commitment in Buena Park and a 309,000 square foot Total Transportation lease in Fullerton. However, West County recorded negative absorption.
Current average lease rates reached "$1.00 PSF NNN which is 8.7% over last year," though projected rent growth has been downgraded from 3.5% to flat.
Los Angeles Industrial Market
LA's industrial sector faces moderate downward pressure with record-high lease rates of "$0.94 NNN" despite challenging conditions. The region experienced "highest total negative absorption since 2008," with combined net absorption reaching negative 1,707,615 square feet.
Notably, "12 of 14 new buildings developed still vacant when completed," indicating structural challenges. Vacancy increased to 1.7%, though South Bay remained resilient at 0.8% vacancy with positive 662,288 square feet absorption.
Los Angeles County implemented a 60-day commercial eviction moratorium.
Prologis Earnings Call Summary
Twenty to twenty-five percent of Prologis customers requested rental relief. The company approved only 7% of requests, averaging "33 days of relief" structured as loans repayable during 2020.
Management expects modest vacancy increases while anticipating that local inventory holding and e-commerce acceleration will support absorption. Collections through April tracked normally, and the company maintains 30 build-to-suit projects in progress.
Prologis projects "flat rent growth this year" with resumption in 2021, balanced against recognition that some tenant demand remains deferred.