Supply Squeeze Continues for Calif. Industrial Rental Markets

The rental market – specifically the industrial corner of that market – is showing little, if any, downward momentum. Two new analyses (and several economic reports/graphics) offer further proof. And Southern California, the Inland Empire and Orange County are all seeing the rental squeeze.

According to a recent report by Jones Lang LaSalle (JLL), 2021 marked the first time that the national average industrial real estate vacancy rates fell below 4%. The average vacancy rate for the year was 3.8%, a testament to the insatiable demand for industrial space. 

A recent CBRE industrial report indicated the vacancy rate dropped even lower in Q4 2021, to 3.2%. Southern California, including the Inland Empire and Orange County, as well as Reno, Nevada: Salt Lake City; Central New Jersey; Charleston, South Carolina; and Boston all have vacancy rates below 2%.

Financial advisor site The Motley Fool puts it this way:

Because of the lack of supply and long-term nature of industrial leases, it’s likely that lease rates will stay elevated in 2022. Meanwhile, tenants with leases coming up for renewal could be facing increases of 25% or more, making for huge potential gains for operators … .

There are, of course, some headwinds, including inflation and supply chain bottlenecks, that could slow the rate at which the industry is growing.  But there’s no question that today’s low supply and high demand means industrial REITs should continue to dominate the commercial real estate market in 2022.