The industrial real estate market in Southern California is shifting towards a buyer’s/tenant’s market. This means that there is an excess supply of available buildings and prices are softening. Large logistics spaces that were once in high demand are now struggling to find tenants, leading to a decrease in rental rates.
Before June 2022, these industrial spaces were quickly taken up by eager occupants, but now they are sitting vacant for months. Rent prices have dropped significantly, with creditworthy tenants now paying $1.75-$1.85 per square foot compared to the previous $2.10.
The shift in the market can be attributed to factors such as increased supply, economic uncertainty, changes in consumer behavior, and financing challenges. Businesses are reevaluating their space needs and opting for smaller or more flexible leasing arrangements.
Despite the challenges faced by property owners, this market presents opportunities for tenants and buyers. Tenants have greater bargaining power and can negotiate more favorable lease terms. Buyers can acquire properties at more reasonable prices and capitalize on distressed assets.
However, there are challenges ahead such as high vacancy rates, maintenance costs, and market uncertainty. Property owners must continue to invest in upkeep to attract tenants, even as rental income declines.
Overall, Southern California’s industrial real estate market is undergoing a significant transition. By understanding the factors driving this change and staying adaptable, stakeholders can navigate the evolving landscape and capitalize on new opportunities.