The Q3 2022 reports on the industrial market in Southern California (SoCal) are in.
The industrial occupancy rate in Q3 2022 for SoCal continued what is now a downward trend toward a “neutral rate” of occupancy — an occupancy level evincing a “fair deal” environment for both landlord and tenant.
In all SoCal counties, the net absorption rate is also trending downward with pandemic induced tenant demand for space mostly gone, as shown by data compiled by Voit Real Estate Services.
San Diego County
San Diego County’s industrial vacancy rate began to rise in Q3 2022 after bottoming in the first half of 2022. In tandem, the net absorption rate is down significantly from one year ago.
San Diego’s industrial vacancy rate is:
- 2.56% in Q3 2022;
- up from 2.0% in Q1-Q2 2022; and
- well below the 5.0% Q2 2020 pre-pandemic vacancy rate.
While San Diego County’s industrial vacancy rate in Q3 2022 is lower than the rate a year earlier, the vacancy rate bottomed in the first half of 2022. Now the vacancy rate is trending upward, indicating industrial space available to tenants is increasing.
This rise in the vacancy rate is a prelude to the elimination of the excessive demand on space brought on by the pandemic period which needs to take place before the industrial market can begin to stabilize. Following that correction will be the cyclical disruption with the 2023 recession.
San Diego County’s industrial net absorption is:
- +234,800 square feet in Q3 2022;
- up from +62,600 square feet in Q2 2022; and
- down significantly from +4 million square feet in Q3 2021.
San Diego’s industrial net absorption rate has experienced a steep drop since Q3 2021.
Orange County
Orange County’s industrial vacancy rate continued to trend downward in Q3 2022, further tightening the area’s distorted occupancy rate.
Orange County’s industrial vacancy rate is:
- 1.05% in Q3 2022;
- down from 1.23% in Q2 2022; and
- well below the peak vacancy rate of 3.1% in Q3 2020 as the pandemic period got underway.
Unlike other SoCal counties, Orange County’s industrial vacancy rate presently continues to trend downward since peaking in Q3 2020.
Orange County’s industrial net absorption level is:
- +750,500 square feet in Q3 2022;
- up from +408,000 in Q2 2022; and
- down from +1.5 million square feet in Q3 2021.
Orange County’s industrial net absorption rate is on a downward trend, currently at half the rate of one year earlier.
Los Angeles County
Los Angeles County’s industrial vacancy rate is on the rise, having bottomed in Q4 2021. In sympathetic action, the net absorption rate has dropped significantly from the pace of one year ago.
Los Angeles County’s industrial vacancy rate is:
- 1.68% in Q3 2022;
- up from 1.11% in Q2 2022; and
- half the vacancy rate peak in Q2 2020 of 3.17% at the beginning of the pandemic period.
The Los Angeles industrial vacancy rate bottomed in Q4 2021 through Q2 2022. Space available is now trending upward toward a neutral rate of vacancies. Industrial space now takes months, rather than days to lease. Currently, the sticky price syndrome common in a declining price market keeps landlords and their brokers from adjusting asking rents to meet market value.
However, the industrial vacancy rate remains well below the 3.17% rate experienced at the beginning of the pandemic period in Q2 2020. Still, the pandemic distortions in tenant demand are dissipating.
Los Angeles County’s industrial net absorption is:
- -45,700 square feet in Q3 2022;
- up from -100,400 square feet in Q2 2022; and
- down dramatically from +3.7 million square feet in Q3 2021.
Los Angeles County’s industrial net absorption rate is now negative, meaning more space is becoming available than occupied on a quarterly basis. This action means the industrial industry is moving toward a normal turnover rate for tenants and landlords.
Inland Empire
The Inland Empire’s industrial vacancy rate also bottomed at the beginning of 2022, rising slowly through Q3 2022. Industrial net absorption is at its lowest level in a year.
The Inland Empire’s industrial vacancy rate is:
- 0.88% in Q3 2022;
- up from both Q1 and Q2 figures in 2022; and
- well below its pre-pandemic peak of 3.92% in Q2 2020.
While the Inland Empire industrial vacancy rate has crept up in Q3 2022, the Inland Empire presently has a wider vacancy rate spread from its pre-pandemic peak vacancy rate than other SoCal counties.
The Inland Empire’s industrial net absorption is:
- +3.1 million square feet in Q3 2022;
- down from +4.7 million square feet in Q2 2022; and
- down from +6.8 million square feet in Q3 2021.
The Inland Empire’s industrial net absorption rate remains on a consistent downward trend dating back to Q3 2021. Over this 15-month period, the net absorption figure has diminished by more than half.
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