Market Looks Good for Industrial Landlords

Fourth-quarter statistics paint a picture of sturdy, if uneven, growth in the Valley’s commercial real estate markets.

“The office market from Glendale to Encino is tight,” said Mike Tingus of Lee & Associates L.A. North/Ventura. “Woodland Hills has quite a lot of vacancy. Not everyone wants to take elevators to their offices anymore.”

According to Colliers International data for the fourth quarter, San Fernando Valley vacancy in the office market lowered to 16.9 percent overall – lower than Los Angeles County’s 19.7 percent. 

“Towards the end of the fourth quarter, things changed,” said Jacob Mumper, vice president at Colliers. “But there was more activity in October and November and then Omicron hit. It could be seasonal as well with the holidays. There was a lot of optimism going into 2022 but a lot of that momentum was taken away because of Omicron.”

Course correction

Kevin Fenenbock, senior executive vice president at Colliers, noted that, quarter to quarter, the office numbers have remained generally flat.

“The East San Fernando Valley is dominated by entertainment. We did see that during the pandemic and up till now those type of entities were coming back strong,” Fenenbock said.

Fenenbock described what has been a delayed response by tenants to the pandemic.

“A lot of companies in 2020 and 2021, they kicked the can,” Fenenbock said. “Now you have a lot of these leases that are coming to expiration.”

Entering the new year, many companies have adopted a permanent hybrid model. 

“Most have adapted their workforce accordingly to this world we live in now,” he said.

Fenenbock believes that there will be much activity in 2022.

“Now decisions can be made,” Fenenbock said. “Will the company expand or downsize? We’ll see companies moving and activity happening. … I think 2022 is going to be the year of fruition. We’re going to figure it out.”

Industrial stays strong

Industrial continues to power ahead through the pandemic. During the fourth quarter throughout the San Fernando Valley, the sector remained tight, posting below 1 percent vacancy.

San Fernando Valley averaged 0.5 percent vacancy for industrial space. Simi Valley and Moorpark hit the lowest milestone at 0.2 percent, while Conejo Valley also notched 0.5 percent. In Santa Clarita Valley, fourth quarter vacancy rose to 0.8 percent, climbing steadily in recent quarters but still low compared to 5.1 percent in the first quarter 2021. In Antelope Valley, vacancy leveled off to 2.6 percent from a high of 3.3 percent in the second quarter of last year.

“North L.A. has been on fire. Same dynamics: plenty of demand, not much inventory,” said Tingus about the industrial market. “Rents have almost doubled in the last five years. Lease rates are on average between $1.15 and $1.35 triple net, if you can find it.”

E-commerce and entertainment have led to growth in areas such as Santa Clarita.

Yet there is one industrial business which Tingus said appears to be vulnerable.

“On the apparel side, they’ve been getting hammered,” he said. “They’re already in a small margin business.”

Beyond that, Tingus hasn’t seen any fractures in the industrial market. In fact, he closed a fourth-quarter deal in which Rexford Industrial Realty purchased 2280 Ward Ave. — a 240,000-square-foot, five-tenant industrial distribution center in Simi Valley — from Topaz Distribution for $46.4 million.

“The client bought it in 2010 for about $13 million,” Tingus said.  

Topaz sold the building in a leaseback of 50,000 square feet. Other tenants at the site include Sooner Express, Frontline Inc., Tire Hub and Life Tech Resources, with each taking about 42,000 square feet.

Overall, the strategy driving much of the industrial market in the valleys follows the model of Amazon.com Inc.

“Everyone at home orders online from all these companies; logistics companies need warehouses,” said Matt Nelson, director of research at Colliers International.

It makes for a robust industrial sector.

“It’s tough to predict anything because we’ve never been in such a tight market before,” Nelson said. “It’s a good time to be a landlord in the industrial world right now.