Industrial Capital Markets

Institutional investors and REITs have become increasingly active in the Los Angeles market, driven by strong historical rent growth and significant barriers to entry. Over the past three years, they accounted for 40% of acquisition volume, up from 30% over the previous decade. In contrast, user acquisitions have decreased to 11% of sale volume, down from 16%, while private investors and private equity funds now represent just under 50% of buyer volume.

During the past decade, private owners and users have generally sold off more properties than they acquired, while institutional investors and REITs have expanded their presence. Notable industrial buyers in L.A. include Rexford Industrial Realty, CenterPoint Properties, Brutten Global, and Dedeaux Properties, while Duke Realty Corporation, Blackstone, and BlackRock lead the selling side.

In 2023, sales volume dropped 40% to $5.3 billion from a record $9.3 billion in 2022, influenced by higher capital costs, weaker market fundamentals, and the recently implemented ULA transfer tax. Sales in 2024 are on a similar downward trend, with $2.3 billion in transactions recorded in the first half of the year.

For logistics properties in institutional-sized transactions over $10 million, average pricing has fallen to around $330 per square foot in 2024, a 10% decrease from 2022. Across all deal sizes, logistics properties average $300 per square foot, while specialized manufacturing properties have traded at $280 per square foot, and flex buildings at $400 per square foot.

Valuations are under pressure due to declining rents and rising cap rates, which have increased by over 100 basis points to the mid-5% range. For example, in July 2024, a 150,800-square-foot building at 9401 De Soto Avenue in Chatsworth sold for $41.5 million, or $275 per square foot, at a 5.9% cap rate. This property, which was fully leased to Ball Corporation and Align Aerospace, features clear heights of 28 to 31 feet and has a weighted average lease term of 2.6 years.

Despite the declining rents in 2024, there are still investment opportunities with potential for growth. Since 2018, rents have increased approximately 40%, when the current tenants moved in at lease rates of around $10 per square foot. In April 2024, Invesco Advisers also acquired a 154,000-square-foot building at 8901-8945 Canoga Avenue, built in 1998 and fully leased to Interamerican Motor Corporation, for $57 million, or $369 per square foot, at a 5.4% cap rate.

Source: CoStar Research