Lease Comps
We have noticed several trends in the last 90 days: * 100,000-300,000 SF properties in the Inland Empire West and East are seeing the most significant lease rate adjustments. * Institutional landlords with low-basis properties and long-term hold periods are leading the lease rate adjustments in the soft IE market to lock up occupancy during the down cycle. * Some landlords are losing out on renewals that they expected based on the competition among landlords. * Chasing the market down is difficult because tenants try to achieve lease terms yet to be reflected in the lease comps. * Tenants prolonging negotiations in the hopes of further rate deflation. * Tenants are signing shorter-term leases to buy time to adjust their overall operation and footprint.
Notable lease comps are below. Remember, results vary based on submarket, property characteristics, new deal vs lease renewal, landlord basis, and tenant rep broker.
Rexford Earnings Call
Rexford Industrial is the only public REIT focused purely on Southern California. 2024 represents their 10th year as a public company and their 22nd year in business. Their earnings call is always enlightening to check against what we see in the market. There was a lot of Q&A on the earnings call about how Rexford adjusts their mark-to-market figures and occupancy forecasts in this call. While this is important for Wall Street analysts, we generally focus more on what we can take away from these calls that are actionable on the tactical level regarding lease renewals and new lease signings, as that is how we can best help you with your properties.
Strategic Growth and Performance
Decade of Superior Growth: Demonstrated an average annual FFO per share growth of about 15% and a 40% average annual total shareholder return over the past decade.
Outstanding 2023 Outcomes: Maintained nearly full occupancy at 98%, with consolidated NOI increasing by over 26% due to strategic initiatives.
High-Impact Acquisitions: Executed $1.5 billion in acquisitions in 2023, mainly through off-market transactions, absorbing 4.3 million square feet of new investments.
Leasing Excellence and Market Dynamics
Robust Leasing Activity: Achieved 7.4 million square feet of leasing with 78% average net effective rent spreads and over 4% in embedded rent bumps.
Leasing Performance Insights: The fourth quarter demonstrated strong leasing spreads of 63% on a net effective basis and 46% on a cash basis.
Sustained Tenant Demand: Increased tenant activity and strong renewal activity highlight the health of tenants and the scarcity of functional supply.
Market Resilience and Demand Indicators: The market remained stable with a 2.75% vacancy rate, flat market rents for products comparable to Rexford's portfolio, and accelerating port volumes at LA and Long Beach.
Financial Stability and Shareholder Value
Dividend Growth Confidence: Reflects sustainable growth and robust financial health with a 10% dividend increase.
Strategic Financial Positioning: Maintains a low-leverage, investment-grade balance sheet with 15% net debt to total enterprise value.
Core FFO and NOI Growth: Core FFO per share rose by 14% in Q4, fueled by effective capital and operational management.
Future Outlook and Growth Opportunities
2024 Growth Outlook: Rexford projects core FFO per share in the $2.27 to $2.30 range, with cash and net effective same-property NOI growth reflecting ongoing momentum.
Active Acquisition Pipeline: Indicates continued growth and market penetration efforts with approximately $150 million in investments under consideration.
Embedded Growth from Leasing: Significant opportunities highlighted by an estimated 51% portfolio-wide net effective mark-to-market for in-place rents.
Strategic Market Expansion: Commitment to leveraging the portfolio and operational excellence to drive shareholder value and expand market share in the Southern California industrial real estate market.
Listen to the call here and read the transcript here .
Critical graphs from their presentation that I thought you would find insightful:
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Best Regards,
Justin
Justin Smith, SIOR
jbsmith@lee (mailto:jbsmith@lee-associates.com) irvine.com (mailto:jbsmith@leeirvine.com?subject=Newsletter%20Follow%20Up)
949.400.4786
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