Southern California’s Industrial Real Estate: How Slowing Activity May Shape Future Prospects
Southern California’s industrial real estate market has long been one of the nation’s hottest, and the past few years have been no exception. For developers, owners, and investors who can pivot, this sector remains a beacon of opportunity, despite the challenges that have shaken the commercial real estate world.
The industrial sector flourished during the pandemic, driven by skyrocketing demand for warehouse space as e-commerce surged. Developers rushed to meet the need, building industrial warehouses at breakneck speed. However, no trend in real estate lasts forever, and today we’re seeing a shift back to more pre-pandemic levels of activity. According to Voit Real Estate Services, Q2 2023 saw a notable drop in industrial sale and lease transactions in the Los Angeles and Inland Empire markets.
This cooldown can be attributed to rising development costs, high interest rates, and a challenging tax environment. Los Angeles’ Measure ULA, for example, has contributed to a drop in sales activity. Additionally, corporate relocations to more tax-friendly states, such as Texas, have further impacted the market.
Yet, the long-term outlook for SoCal’s industrial sector remains positive. While we’re seeing consumers return to brick-and-mortar shopping, online retail isn’t going away. And with Southern California’s land-constrained markets and high demand for industrial space, especially in ports like Los Angeles and Long Beach, the region’s industrial real estate is set for future growth.