At this month’s Southern California Discussion Panel, John Dang, Business Development Manager of Oltman’s Construction Co., led an engaging discussion on future forecasts of the industrial market in Los Angeles County. Panelists Paul Giorgio, COO of Eldridge Acre Partners; Philip Tsui, Senior Vice President at Trammell Crow Company; and Cameron Merrill, Senior Vice President of CBRE, discussed their insights and trends they are seeing within their perspective fields. All four emphasized how easing costs and strategic planning will improve the market for industrial space. 

Key takeaways included: 

• Challenges in the industrial sector 

Challenges in the industrial sector over the past four years have been due to the pandemic. When COVID-19 took the nation by storm, there was a great increase in demand for industrial space in Los Angeles. However, the county lacked the available inventory, which led to a rise in leasing rates. Since 2022, the industrial sector has seen a surge in inventory, which has improved the leasing rates. Tsui added that lease rates are hard to predict in the next two to three years. However, he suggested that if the market follows the cyclic trends, then land value will probably decrease, leading to a decline in property value.  

Merrill concluded that companies have become more interested in leasing buildings that have attractive amenities and facilities (loading docks, high ceiling clearance, truck port spacing, etc.). He also mentioned increased interest in locations near desirable residential neighborhoods.   

• Signs of growth ahead 

The panelists are optimistic about the future, noting significant improvements across the industry. Merrill highlighted that we have returned to pre-COVID leasing rates, and inventory levels are seeing a rise in occupancy. Tsui expressed confidence in his projections, noting that land value has decreased from 75% to 50% of his projects’ budgets. This shift indicates a more balanced relationship between land value and property value.Giorgio concurred that positive trends are emerging but emphasized that "those who react quickly are the ones who succeed." He indicates that just like with COVID-19, things can change quickly, so it is important to make key strategic developments and always plan accordingly. 

• Construction’s effect on the industrial sector 

Giorgio compared the industrial market to the retail market, where consumers have always been attracted to prime locations, like the Westfield Century City Mall. In the same way, companies want their industrial buildings to be high-quality and equipped with good amenities, planning their construction accordingly. The best industrial buildings will ultimately stand out and dominate the market.  

Dang and Tsui noted that construction costs have decreased by 8%-10% since January 2024, which enhances project viability. They emphasized the importance of planning construction in advance, as companies can save significantly by aligning their projects with market trends.  

• Predictions for the industrial sector in the next year 

All the panelists expressed optimism about the industrial market's future. Giorgio explained that the decrease in construction costs, land values, and interest rates are promising signs. However, to see positive changes, we must be strategic with our planning. Many assume that development is straightforward, but circumstances can change quickly. Developers need to ensure they are creating the "right" project, as what benefits a company today may not be as effective a year from now. Clear communication and proactive planning are crucial. 

Tsui agreed and shared that Trammell Crow is moving forward with new development plans for the next six months. "It’s been quiet, but when the time comes, the industrial market will thrive," said Tsui. 

Merrill added that many larger properties, currently unused, will be redeveloped into industrial operating sites (IOS), cold storage facilities, and e-commerce buildings. He noted that these are the properties companies are looking to lease. 

• Legislation’s impact on the industrial sector 

An audience member asked how California Assembly Bill 98 (AB 98), a law regulating the development of logistics facilities and warehouses, will impact the industrial market. Giorgio and Tsui agreed that AB 98 will inevitably increase costs due to stricter regulations on construction and will significantly affect the real estate, design, and construction industries. 

John expressed concerns about the bill's clarity. “If COVID-19 has taught us anything, it’s to remain composed. We need to understand this bill fully, and a lot of work is needed to achieve that understanding.” He noted that while AB 98 has pros and cons, and while it opens doors for innovative designs and products, it also risks delaying construction plans if they don’t comply with updated regulations. It’s crucial to consider the benefits and challenges of this new legislation carefully. 

 

While the industrial sector has faced significant disruptions over the past few years, the overall outlook remains positive, with decreased construction costs, increasing inventory, and a focus on high-quality developments that meet the changing needs of businesses. As the market continues to evolve, those who are agile and forward-thinking in their planning will be best positioned for success in the years ahead.