Big-box warehouses play a crucial role in the consumer supply chain. Fueled by steady growth in eCommerce and robust global trade, big-box leasing (100,000+ square feet) is on the rise. With industrial vacancy in the Los Angeles (LA) Basin at a historic low of 2.2%, options for relocation are extremely limited. Not surprisingly, we have seen a slowdown in new leasing velocity in the big-box sector, with a 9.7% drop in the number of new deals in 2018. In contrast, renewals increased 17.9% year over year for the same period.
Demand for big-box spaces has been especially intense in the Inland Empire (IE), which last year saw the highest number of transactions over 1 million sf for any U.S. market. Although the IE saw a 10.7% decrease in new big-box leasing in 2018, it remains a top performer in both leasing activity and net demand as eCommerce drives companies to search for newer, larger, state-of-the-art facilities.
For the infill markets, the extremely tight market is inhibiting companies from growing and expanding. This has put a lid on new leasing activity, especially for big-box assets. In 2018, Los Angeles and Orange County (OC) saw 69 new deals over 100,000 sf compared to 75 in 2017. Out of the LA/OC infill markets, the South Bay had the most deals in this size segment, with 25 transactions totaling 3.9 million sf. Meanwhile, Mid-Counties landed in 2nd place with 16 deals totaling 4.1 million sf.
A significant driver of recent demand has been the rapid-fire growth of eCommerce. As a share of retail sales, eCommerce has grown from 5.8% in 2013 to 10.0%* in 2018 and is projected to hit 12.4% by 2020. With the shift from storefront retail to eCommerce fulfillment, businesses that can close the loop for the last leg of distribution will continue to generate strong demand.
Global trade is also a major source of industrial demand, with 2018 marking the busiest year in the history of the local ports. The Port of Los Angeles/Long Beach posted a 3.9% annual growth in container volume. A major generator of industrial demand, import volume at the Port of Los Angeles/Long Beach rose 4.5% year-over-year, with the Port of Long Beach posting an annual increase of 6.1%.
Rooney Daschbach, Senior Director at Cushman & Wakefield, said: “Calendar year 2018 was an all-time record for combined TEU (or twenty-foot equivalent unit) volume at Port of Los Angeles and Port of Long Beach. It was the 8th consecutive year-over-year increase. After exceeding 16 million TEUs for the first time in 2017, the ports exceeded 17.5 million in 2018.”
Leading indicators continue to point to robust industrial demand. Strong warehouse demand will continue to be fueled by robust port volume and the vast consumer appetite for eCommerce. Trade flows are likely to soften slightly in 2019 and 2020, yet remain strong enough to support industrial leasing fundamentals. Trade policy and the uncertainty surrounding it are the greatest risks to the outlook. Lack of supply in infill markets, rising land and construction costs, and strong demand will continue to fuel warehouse rent growth. According to the most recent Cushman & Wakefield North America forecast report, port markets and infill markets are where rent growth will be strongest in 2019-2020.
Industrial Research Director
Los Angeles Basin
+1 310 525 1918
*Sources: Cushman & Wakefield Research, Statista *projected – 3Q2018 was 9.8%