The greater Los Angeles industrial market, like many others across the region and state, is recalibrating due to slowing demand and a flood of new product, but that doesn't mean deals aren't getting done.

For many tenants in the market, the slowdown has opened up a window of opportunity in the pricey SoCal industrial space. Pricing is finally where it needs to be to pique occupier interest again, particularly for smaller users.

Although tenant demand is still below the incredible highs of the pandemic, brokers say they are seeing activity among smaller and more regional users as opposed to the big e-commerce and third-party logistics, or 3PL, tenants that gobbled up big chunks of space two or three years ago.

In the fourth quarter of 2023 and Q1 this year, 3PLs pumped the brakes on leasing, taking approximately 712K SF combined. In the second quarter, 3PLs’ appetites rebounded and they leased more than 1.4M SF in greater LA — a figure that is more in line with the volume leased in the first three quarters of 2023.

But most of that Q2 leasing activity was by smaller local or regionally focused 3PLs that have a few facilities around LA and are looking for more, JLL Managing Director Rustin Mork said.

Mork said these 3PLs often serve companies that sell via digital platforms such as TikTok.

Third-party logistics companies made up the largest share of new leasing activity in greater LA, exceeding the prior five quarters in the 75K SF-plus range, according to CBRE data. 3PLs, along with apparel firms, accounted for almost half of the top 25 leases in the second quarter.

“I think pricing is finally at a point where people find it attractive enough to be able to make money in the space,” Mork said.

Pricing has remained more or less flat, according to data from CBRE. The average direct triple-net asking rate increased by 2 cents quarter-over-quarter to $1.54, but that figure represents a 7.8% decline from the peak rate reached in Q3 2022, CBRE data shows.

The occupier pool is diverse, but one notable sector is the manufacturing category. These types of occupiers, which run the gamut from food and beverage manufacturing to more specialized aerospace and medical companies, saw a big uptick in Q1, signing approximately 802K SF in greater LA.

Manufacturers signed leases for less total square footage in the second quarter than at the beginning of the year, but the second quarter’s roughly 450K SF of new manufacturing leases still exceed those of the second, third and fourth quarters of 2023, according to CBRE data.

Although the numbers are far from indicating a manufacturing boom, there were notable transactions, including Neutraderm’s expansion in the San Fernando Valley, that serve as a reminder that things are still made in LA.

The Neutraderm transaction involved the personal care products company buying a 60K SF building next to two it already owns to expand its operations. Lee & Associates - LA North/Ventura principals Erica Balin and Scott Caswell represented Neutraderm in the deal.

The San Fernando Valley, especially the western region, has a history as a hub for personal care companies, Caswell said, and he has dealt with several of these companies as a specialist in the area. Some of these companies need certain building amenities — temperature-controlled areas, higher electrical capabilities — because of what they do on-site, which can narrow the pool of possible locations.

Some brokers said the largest overall quarter-over-quarter difference they have seen in the market is increased tenant demand.

“It’s just very simple: There are more people out looking for space,” The Klabin Co. Senior Managing Principal David Prior said.

Prior, who represents tenants and landlords, said a number of listings that didn't have movement on them have now leased, albeit at a lower price point than they would have leased about a year ago.

“But it's been leased, and that's the critical thing,” Prior said.

JLL’s Mork said it will take a quarter or two to see if the increase in interest translates into a bigger volume of deals, but he agreed that the heightened demand isn't yet affecting rents.

“That increased demand is not necessarily bringing pricing up but is helping reduce an oversupply of available buildings and creating more competition between tenants,” Mork said.