Industrial Sales Analysis

Institutional investors and REITs have increasingly turned to Los Angeles for its strong historical rent growth and significant barriers to entry. Over the past three years, they have accounted for 40% of acquisitions in the market, up from 30% in the previous decade. In contrast, user acquisitions have dropped to 11% of sales in the past three years, down from 16% over the last decade. Private investors and equity funds have also lost some ground, contributing just under 50% of buyer activity.

Meanwhile, private owners and users have been net sellers over the past decade, while institutional players and REITs have expanded their foothold in the market. Leading industrial buyers in the past year include Rexford, CenterPoint, Invesco, Prologis, and Greenlaw Partners, with top sellers including Duke Realty, Blackstone, and BlackRock.

In 2023, higher capital costs, weaker market fundamentals, and the introduction of the ULA transfer tax on transactions over $5 million caused sales volume to plummet by 40%, from a record $9.3 billion in 2022 to $5.3 billion. The trend has continued into 2024, with just $3.1 billion in deals recorded in the first three quarters.

Logistics buildings involved in institutional-sized deals (over $10 million) have averaged $330 per square foot in 2024, a slight increase from 2023 but still over 10% lower than in 2022. Across all deal sizes, logistics properties have traded for an average of $300 per square foot in the past year, while specialized manufacturing facilities averaged $280 per square foot, and flex buildings commanded $390 per square foot.

Market valuations remain under pressure due to declining rents, but rising cap rates have had a more pronounced impact on pricing. Cap rates have risen by over 100 basis points to the mid-5% range. Notable transactions include Greenlaw Partners' August 2024 acquisition of two 1970s-era buildings in Santa Fe Springs and Cerritos for $69 million ($295 per square foot) at a 5.1% cap rate. The portfolio, 92% leased to nearly ten tenants, provides stable cash flow despite softening rents.

In July 2024, a 150,800-square-foot building at 9401 De Soto Ave. in Chatsworth sold for $41.5 million ($275 per square foot) at a 5.9% cap rate. Originally developed in 1983 and renovated in 2016, the property features modern amenities, including 28'-31' clear heights, significant office space, and a secure yard. Fully leased to Ball Corporation and Align Aerospace, the building offers potential for rent increases, as market rents are still up 40% from 2018, when the tenants first signed leases.

Similarly, in April 2024, Invesco Advisers acquired a 154,000-square-foot property at 8901-8945 Canoga Ave. for $57 million ($369 per square foot) at a 5.4% cap rate. Built in 1998 and fully leased to Interamerican Motor Corporation, this deal reflects ongoing investor appetite for high-quality assets, even in a challenging market environment.

Source: CoStar Research