The Southern California industrial real estate market is witnessing a notable contraction in its development pipeline, driven by a combination of weak market fundamentals, rising construction loan costs, and stringent lending requirements. This shift is set to reshape the landscape of industrial space in the region over the coming years.
Current Construction Trends
Recent data reveals that the amount of industrial construction underway has dropped sharply to 31 million square feet, a significant decline from a peak of 56 million square feet in 2022. Despite this reduction, the current level of activity has reverted to pre-pandemic norms seen between 2017 and 2019. Forecasts indicate that construction will likely continue to slow into 2025, with supply deliveries expected to outpace new construction starts.
In 2023, deliveries across key markets—including Los Angeles, Orange County, and the Inland Empire—peaked at 37 million square feet. This year, approximately 31 million square feet are projected for delivery, with expectations that supply growth will dip below 20 million square feet in 2025. However, the development pipeline is not expected to completely dry up, as owner-occupiers and developers with available capital continue to make strategic investments.
Regional Highlights
The Inland Empire remains the focal point of industrial development, accounting for 75% of the pipeline in the region. Noteworthy projects include:
- The Hub: A nine-building logistics park near Ontario Airport, offering flexible leasing options ranging from 200,000 to 930,000 square feet.
- Sycamore Hills Distribution Center: Located in Riverside, this development features two buildings of 400,000 and 203,100 square feet, both designed to meet modern logistical needs with clear heights of 36 feet.
In Los Angeles County, Trader Joe’s is leading the charge with the construction of a substantial 1 million-square-foot food assembly and distribution facility in Palmdale, which is expected to create up to 1,000 jobs. Meanwhile, several speculative developments are also underway, including:
- Covington Group’s 263,000-square-foot building at the Santa Clarita Commerce Center.
- Rexford Industrial Realty’s 202,000-square-foot property at 9615 Norwalk Blvd., highlighting the ongoing demand for industrial spaces even amid a tightening market.
In Orange County, significant projects are taking shape as well, including:
- Goodman Commerce Center: Two buildings (204,000 and 185,000 square feet) have recently commenced construction, strategically located near the ports.
- Stadium Landing: Located adjacent to Angel Stadium, this redevelopment includes a 237,300-square-foot building with extensive loading capabilities and a smaller 100,800-square-foot building.
Market Insights
Currently, the 1.6 million square feet of industrial space under construction in Orange County and the 6.2 million square feet in Los Angeles represent only a minor fraction—0.5%—of each market’s existing inventory. In stark contrast, the Inland Empire’s 17.6 million square feet of ongoing construction ranks sixth highest nationally, accounting for 2.3% of its existing inventory, surpassing the national average of 1.8%.
As the Southern California industrial market navigates these challenges, the focus remains on strategic developments that meet the evolving needs of businesses. With continued investment in key projects, the region is poised to adapt to the shifting landscape, albeit at a slower pace than previously anticipated. Stakeholders must stay informed and agile, ready to capitalize on opportunities as they arise in this dynamic sector.
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