URGENT UPDATE: Southern California has just been confirmed as the most expensive region in the U.S. for warehouse rents, according to a new report from Commercial Cafe, tracking key performance metrics for industrial real estate as of September 2023. With Orange County leading the nation, average industrial lease costs have surged to $17.09 per square foot, marking a significant 7% increase over the past year.
The Los Angeles market follows closely, with rents averaging $15.59 per square foot, a 5% rise year-on-year. New leases in L.A. have reached an average of $14.88 per square foot, placing it at No. 6 among the 30 major U.S. markets. This dramatic spike in rental prices underscores the intense demand for warehouse space in the region.
The Inland Empire offers a slightly more affordable option, with industrial rents averaging $11.65 per square foot, ranking No. 7 nationally and up 8% from last year. New leases in this area cost around $14.58 per square foot, also the seventh-highest. While these rates may seem elevated, they pale in comparison to the broader national average of $8.72 per square foot, which has seen a 6% increase over the same period.
The soaring costs are primarily driven by the logistics demands of the densely populated Southern California region, which plays a crucial role in managing goods from the Los Angeles/Long Beach ports—one of the largest shipping hubs in the world. With such high operational requirements, finding available warehouse space remains a challenge. Currently, the vacancy rates are significantly low: 7.7% in the Inland Empire, 8.2% in Orange County, and 8.3% in Los Angeles, all below the national average of 9.5%.
These elevated rental prices are translating into steep selling prices for industrial properties. In the first nine months of 2023, Orange County industrial properties sold for an average of $306 per square foot, the second-highest in the country, trailing only Detroit’s staggering $624 per square foot. Los Angeles follows in third place at $282 per square foot, while the Inland Empire ranks sixth at $234.
This urgent trend in Southern California’s warehouse rental market not only highlights the economic dynamics at play but also reflects the broader challenges facing businesses and consumers amidst rising logistical costs. As the demand for warehouse space continues to outstrip supply, stakeholders must remain vigilant for further developments.
Experts are closely monitoring these changes, as they could have profound implications for supply chain management and pricing strategies across various sectors. Stay tuned for more updates on this evolving situation.
