Industrial Construction Analysis

Los Angeles County is a tightly constrained market with high land costs and strict development rules. Because of limited space, most industrial construction—especially large logistics facilities—has shifted eastward into the neighboring Inland Empire. Over the past decade, less than 5% of Los Angeles' industrial inventory has been built new, compared to a national average of over 17%. Adding to the challenge, 48.2 million square feet of new construction during this time was offset by the demolition of 32.8 million square feet, resulting in less than 1% growth in total supply.

The lack of new industrial space has been so acute that tenants were preleasing speculative developments before they were even finished just a few years ago. But in 2024, more projects are being completed amid a slowdown in tenant demand. For instance, two recently completed buildings in Grand Crossing South in the City of Industry, both over 600,000 square feet, are now available for lease.

Construction activity has moderated, down from a recent peak of just over 8 million square feet to 6.2 million square feet as of late 2024. Over the past three years, development has held steady, ranging between 6 and 8 million square feet, as new project starts have kept pace with completions.

Even with rising vacancies and cooling rents, developers continued to launch new projects in 2024. The scarcity of modern facilities with features like higher clear heights and ample power near the ports gives developers confidence that new space will lease once demand rebounds. Notable projects include the Goodman Commerce Center Long Beach, a 505,000-square-foot facility with a 40-foot clear height at 2401 E. Wardlow Road near the airport, and several mid-sized buildings breaking ground in Santa Clarita. Submarkets like Long Beach, Santa Clarita, Antelope Valley, and Santa Fe Springs/La Mirada are leading the way in construction.

However, vacancy rates are likely to rise as current projects are completed. Among speculative developments, only about 5% of the space under construction is preleased, excluding a 1-million-square-foot owner-occupied Trader Joe's facility in Palmdale. New supply is primarily concentrated in mid-sized buildings; the Trader Joe’s facility and the Goodman Commerce Center in Long Beach are the only projects exceeding 500,000 square feet.

Meanwhile, competition is fierce among smaller projects. Over 20 buildings in the 100,000–300,000 square foot range are currently under construction, and about 25% of similar-sized buildings completed since 2022 remain vacant, with over ten still entirely unleased.

Source: CoStar Research