The industrial market's descent from the astronomical highs of 2020 and 2021 continues, and in Los Angeles County, that means rising vacancy, more space available for sublease, fewer square feet under construction and negative absorption. But many experts aren't too worried about it.

“We’re probably getting to a more sustainable pace,” NAI Capital Managing Director of Research J.C. Casillas said.

The double-digit rent growth and near-nothing vacancy rates of two years ago were neither healthy nor sustainable, Casillas said.

“It’s hard to say the sky is falling,” he said. “When the market was extremely tight, that was unhealthy as well.”

NAI Capital found that fourth-quarter vacancy in LA County was 4.2%, “the highest since Q4 2013,” according to a quarterly report. A Savills report from the same period pegged vacancy at 4.5% in the LA market, but Savills includes Ventura County in its figures. The average vacancy for the seven LA County regions Savills tracks is closer to 4%, according to a Bisnow analysis of Savills data.

CBRE, meanwhile, clocked a vacancy rate of 2.1%. In LA's industrial market, where a single property can reach into the millions of square feet, tracking just one or two leases differently can result in discrepancies between reports.

“Activity has certainly declined,” CBRE Associate Research Director Konrad Knutsen told Bisnow, but “it’s still, by all accounts, a very healthy marketplace.”

At the vacancy rate that CBRE found, developers would usually be clamoring to develop new projects, Knutsen said. The fact that they aren't is a testament to the impacts of the Federal Reserve’s actions to tamp down inflation.

“There are just very stringent requirements now for lending, and it's really a bit of a damper and constraining further market growth potential,” Knutsen said. “That is not indicative of the will of the occupier or the will of the investor-developer across the industrial landscape.”

Some developers are banking land with the intent to develop it when conditions improve.

In July, global industrial owner and developer Goodman acquired the Farmer John site in Vernon, California, a food processing plant that had been active for decades. The plant is known locally for the 45 years it produced Dodger Dogs, the signature snack of the Los Angeles Dodgers.

“Due to the scarcity of developable land in the Central LA submarket, industrial land accumulation of this size has not been seen in over ten years,” Colliers Vice Chair Michael Kendall, who led the team that brokered the deal, said in a release at the time. “This transaction creates a generational opportunity to build one of the most significant industrial facilities in the world.”

Although the site appears to be under demolition now, a representative for Goodman said a new build-to-suit project would begin “when market conditions warrant.”

Still, there is a fair amount of space under construction.

By NAI Capital’s count, 6.3M SF of industrial space is under construction, which amounts to a 16.7% drop from Q3 but just a 0.9% decrease compared to Q4 2022.

Savills Research Manager Caitlin Matteson said she anticipates that the first half of 2024 will be “a holding year.”

“What is it going to look like after all of this space has been put online with the new construction? What are the rental rates going to do because of that?” Matteson said. “We're just going to have to wait and see where the dust settles.”