Why SoCal Industrial Still Yields Opportunities
Daum Commercial's Rick John on the benefits of looking westward for investments.
The industrial sector has proven itself to be a highly resilient asset class that has continued to draw investor interest, even over the turbulent past few years for commercial real estate. While transactions remained at nearly a standstill for the majority of 2024, there was steady demand for well-positioned industrial assets.
Industrial is appealing to investors seeking a hedge against inflation to preserve capital. While still elevated slightly from their historic lows, cap rates are compressed, with most transactions closing at sub-5 percent cap rates in prime markets. It was also the only major product type to see a decrease in loan delinquencies in the fourth quarter, a further testament to the sector’s stability through an evolving economic landscape and unprecedented global events.
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Yes, there have been persistent headlines of oversupply and softening demand in Los Angeles County and the Inland Empire and attention being driven toward emerging markets in the Southeast and Midwest. That said, Southern California and other Western markets remain critical hubs of commerce and logistics that will continue to benefit from the same demand drivers and fundamentals that have historically propelled these regions. In fact, there are emerging submarkets within these regions with strong growth potential that are attracting businesses, developers and investors alike.
Strong outlook for demand drivers
Even in the face of a new administration and geopolitical uncertainty, Western markets in particular remain a key hub for both global and domestic commerce. In 2024’s fourth quarter, year-over-year volume at Southern California’s San Pedro Bay Port Complex (home to the ports of Los Angeles and Long Beach) was up 19.5 percent, according to Freightos data, and costs per container from East Asia to the West Coast declined 13 percent.
While some investors are still hesitant to make moves amid headlines of rising vacancies resulting from significant deliveries, strong absorption rates indicate that these will likely begin to fall again in 2025. In fact, throughout the Inland Empire, average gross and net absorption rates were up in the fourth quarter as a result of stronger demand.
From an overall economic standpoint, higher employment rates and improving sentiments are signs we will see industrial users making moves. This will create ample opportunity, as many tenants are poised to strategically navigate their own growth and invest in their supply chains this year. At DAUM, we’ve assisted several companies, including retailers and distributors, with expansions this past year and expect this kind of activity to continue.
Opportunities in emerging submarkets
We’re even seeing new and planned construction of state-of-the-art distribution centers and mega-warehouses in historically underutilized areas of the Inland Empire and Los Angeles County that still have ample developable land.
One example of this is L.A. County’s Antelope Valley, which is located just an hour from the ports, north of the city of L.A. and just west of the Inland Empire. With growing business and residential populations, an educated workforce and a business-friendly government, it is poised to continue attracting businesses and represents an area of industrial growth and fertile ground for investment.
Industrial users, including logistics firms and manufacturers, are attracted by the region’s affordability, given that rental rates remain high in submarkets near downtown Los Angeles. Additionally, drayage costs to the Antelope Valley are the same as to Beaumont and Banning and lower than the High Desert, Tejon and the Central Valley.
In fact, DAUM agents recently arranged the sale of 68.5 acres of land in Lancaster—fully entitled for a 1.26 million-square-foot distribution center—to Amazon.
Especially as the logistics industry continues to increase its capabilities of next- and same-day delivery, there remains strong demand for quality industrial space near key population and transportation hubs.
Rick John, SIOR, is executive vice president at DAUM Commercial Real Estate Services.
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