The industrial market thrived through the pandemic and has been on an increased trajectory in 2021. Demand is continuing to outpace supply dramatically throughout both Los Angeles and the Inland Empire. This has caused rents to increase substantially- as much as over twenty percent in quarters one and two of 2021. We have seen vacancy rates hover in the one percent range for Los Angeles and under two percent for the Inland Empire. The average asking rent in Los Angeles has increased to $1.09 per-square foot (PSF). The average asking rent for the Inland Empire increased to $0.88 PSF.
The vacancy rate for the San Gabriel Valley Industrial market is estimated at 0.8%. The average asking rent is $1.18 PSF. There is currently about 1.5 million square feet under construction.
The biggest challenge for the industrial market in Southern California is lack of development land remaining. Many developers are seeking infill sites as well as older buildings that are functionally obsolete to either rebuild or renovate. Some projects are converting office properties to flex and industrial to fill demand. Another challenge has been congestion at both ports. Lack of workers and increased drayage costs have caused delays and difficulties in getting supplies out of the containers. Employment has been a huge strain on companies who cannot find employees who want to fill these positions. The average US unemployment rate was 5.9 percent in May of 2021 and in Los Angeles unemployment stood at 11.1 percent which is a stark contrast to the national average.
The Office Market
The office market is continuing to improve throughout Los Angeles. The vacancy rate increased slightly to just under eighteen percent due to new construction brought to the market. Sublease availability also contributed to the increased vacancy. The average asking rent decreased three percent from quarter one to quarter two. Media companies are the main drivers for the Los Angeles office market. Landlords prefer incentives such as free and tenant improvements in lieu of lower lease rates to attract tenants.
The San Gabriel Valley office market is seeing more stabilization. The vacancy rate remained steady at 10.9 percent for the second quarter. Lease rates remained slightly lower averaging at $2.25-2.49 PSF.