The Expert: Los Angeles Slumps Under Recession
- May 12, 2009
Los Angeles County’s industrial sector experienced the largest amount of negative net absorption in the first quarter compared to all other industrial markets, with negative 8.8 million square feet. This is the largest quarterly hit to occupied space in the metropolitan area since the first quarter of 1990. This contraction in demand for industrial space increased the availability rate by 100 basis points for the quarter to 6.5 percent. The current economic turmoil is having a large effect on one of the nation’s largest industrial markets. The port is at a standstill, given the drop-off in trade activity, with both imports and exports lacking. And the local consumer is struggling given the pace of job losses and the housing bust.Amid this slump, is there any remarkable differential between property type and building size or age categories? First, demand for both warehouse and manufacturing facilities contracted in similar absolute values in the first quarter, each about 4 million square feet. Newer warehouse space—built since 2000—actually has the highest availability rate at 10.7 percent among all buildings completed during the past four decades. Newer buildings form 13 percent of the 483 million square feet of warehouse stock in Los Angeles. Those newer buildings that are smaller than 100,000 square feet have the highest availability rate. Newer manufacturing space has the highest availability rate compared to properties that rose during the past 40 years, Surprisingly, however, midsize manufacturing buildings, those between 100,000 and 199,000 square feet, have the highest availability rate, at 27.3 percent.Newer, smaller space is experiencing weaker fundamentals as national and global economic conditions impact the market. Overall, however, Los Angeles is well positioned to be one of the first industrial markets to recover, owing to limited industrial-zoned land, low levels of new construction and low availability rates.Laura Stone-Mortimer is vice president & senior economist for CBRE Econometric Advisors.