As Lease Rates Climb and Land Values Increase, this cycle is Pushing Up Lease Rates and Building Sales Values Even Higher

​It is nothing new that demand for Southern California industrial property has continued to grow steadily in recent years. But what is fascinating market participants now is how this demand is accelerating in the fast-paced relationship between the recent lease rates and the price developers are willing to pay for developable industrial land.  What we are experiencing in the industrial property sector is a very rapid exchange of new leases being signed at higher and higher rates, which is pushing the value for industrial land to higher and higher price levels.  And it is happening quickly now.  As a new lease is inked between tenant and landlord at a new high-water mark, it quickly translates to developers being able to push the values on their land acquisition cost as they target future rental appreciation in their return models.  

​In the past several months we have seen industrial lease rates for quality dock high distribution space cross the threshold of the $1.25 PSF triple net, with some existing developments underway targeting close to $1.50 PSF Net.  As a result, we have seen land acquisition targets for sites 6+ acres starting to exceed the $100 to $120+ PSF price point if a large piece of land can be found.  As this trend continues, we are also seeing its impact on finished/existing industrial buildings which are starting to be purchased for $300 PSF, to $350 PSF for modern quality space.
 
Most people are looking at this trend with the expectation that it will continue for at least the next several years, as the demand is continually propelled by e-commerce and other home delivery of products or food. Therefore, as owner-occupants and investors consider opportunities, they are both seeking to secure deals at today’s values and position themselves to lock in their lower cost basis now as they anticipate continuing price increases in coming years. 
 
This entire scenario is further fueled by an abundance of available capital looking to invest in Industrial properties and that is also propelled by the extremely low interest rate environmental for those looking to leverage their capital.
 
If you are a tenant, buyer, developer and/or investor looking to take advantage of this market, it is critical to be able to move quickly when an opportunity presents itself.  Contact our team today to discuss your criteria and desired results so we can help you formulate or execute your strategy.