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No Time For A Correction: Regional Industrial Outlook Remains Strong, Experts Say

Even with a possible correction looming over the real estate market, the Southern California industrial market continues to remain hot and show no immediate signs of a slowdown, experts say.

Allen Matkins' John Condas, Prologis' Kim Snyder, Overton Moore Properties' Timur Tecimer, Rexford Industrial's Howard Schwimmer and CBRE's Kurt Strasmann

The Los Angeles basin boasts a 1.4% vacancy rate, the lowest in the country, Cushman & Wakefield Vice Chairman Jeffrey Cole said at Bisnow’s The Future of SoCal Industrial event Nov. 28 at the Omni Los Angeles Hotel at California Plaza.

Rent has risen 12% year over year and 32% for warehouse and distribution space the past three years. Some industrial buildings are selling for more than $300/SF, Cole said. 

“Industrial is now cool. You couldn’t say that a couple of years ago,” Cole said. “It’s an exciting time. It’s a record-breaking market.”

More than 175 people attended the half-day conference, where panelists discussed the growth of the industrial sector, building design trends and how to help clients attract and retain talent. 

Labor is probably one of the biggest challenges right now, Watson Co. CEO Jeffrey Jennison said. 

“One thing that we hear over and over again from our customers is the challenge of labor,” Jennison said. “Finding good quality employees, [and] keeping them away from the Amazons of the world is very difficult.”

Jennison said one of the first things a client asks him and his team before discussing the actual building features is the area’s labor pool and availability. 

Labor shortage issues aside, the industrial market is one of the fastest-growing sectors in commercial real estate. 

CBRE forecasts the U.S. industrial sector will demand 452,000 warehouse and distribution workers this year and next.

Attendees network at Bisnow's Future of SoCal Industrial event

The rise of e-commerce, lack of supply and high demand for distribution space and last-mile and return locations are all pushing land values and rents up, especially in Southern California. 

The Port of Long Beach and Port of Los Angeles are driving up the price of industrial property. 

“It’s port-driven,” Kidder Mathews Managing Partner Jon Reno said, adding that companies want to be near the ports.

But could Southern California get hit hard if there is a downturn or market correction? Many of the panelists say the market in Southern California is too strong right now.

"We're in Southern California. We're not at any other place," CRG Senior Vice President Western Region Bud Pharris said. "I think other places are going to feel [a downturn] before we do. As long as capital is as aggressive and excited about getting into this market, I think we're still good for a while, maybe in the long run if we're lucky."

CBRE Executive Managing Director Kurt Strasmann said the industrial market still has two or three years of runway left.

Strasmann said he expects the market in general — office, retail, capital markets, industrial — will probably experience a transition period starting in 2020. 

"Maybe a 10% drop in volume and business," Strasmann said. "But nothing like before."

Strasmann said companies such as Prologis and others are more prepared than they were before the 2008 recession. They have worked hard at lowering their debts and are prepared to weather any storm ahead. 

"They've positioned themselves well for the future," he said. 

Check out a slideshow of the event here:

Future Of SoCal Industrial 2018  

CORRECTION: DEC. 6, 3:45 P.M. PT: A previous version of this story had errors in CBRE Executive Managing Director Kurt Strasmann's name and title. The story has been updated.