March 2015

Industrial Lease and Sale Prices are Rising

Industrial rental rates in Los Angeles have increased in the last year by 10- 50 percent.  Creative industrial properties that have been fully improved are getting rent increases 50 percent higher than a year ago.  However, industrial building rates have risen 10 to 20 percent in the past 12 months without improvements. 

Before this recent trend, the past 15 years industrial rates have not really increased.  I represent a 60,000-square-foot building for lease in the South Bay area of Los Angeles County.  The building has been on the market for 60 days, and the current occupant of the past 15 years will move out when the lease expires on March 31, 2015. 

In the last two months this industrial building that, has been on the market, has been shown 38 times.  This amount of building tours was unheard of in the past.  I have received three offers for the asking lease rate this week.  The question is who of the three prospective tenants gets to move into the building?

There is currently a limited supply of industrial buildings on the market and no vacant land to construct new buildings.  As a result, rental rates are going up in Los Angeles and purchasing a building is even more expensive than ever.

In addition, I am renewing a tenant who has been in a building for five years located South of LAX on the Westside.  The lease is for a 5 year term based upon a Fair Market Value. Based upon findings the rent for this 40+ year old building has increased by 76% in the last five years.  These numbers are absurd compared to the rates that I have been dealing with in the last 40 years.

Industrial buildings listed for sale are more difficult to locate than rentals, because they only represent 10 percent of the market.  The percentages of the increase in the sale prices are comparable to the percentages in lease increases. 

The difficulty with these surging purchase rates is finding comparable buildings that have sold in order to support appraisals.  Appraisers just do not have enough information to justify an appraisal value; therefore, lenders are reluctant to make loans on Los Angeles industrial properties unless the size of the loan is very low.

Industrial and commercial markets are always changing; however, it is a great time to own industrial space due to the rising rental and sale prices right now.

“Lee Segal is an excellent witness in the area of commercial real estate leasing and development. He did an excellent job for us testifying at trial, was very credible, and came across as authoritative in his areas of expertise. He is very polished in his appearance, demeanor and testimony.”  
Robert D. Mitchell, Mitchell & Associates, P.C.