California Leads National Demand For Industrial Real Estate

The industrial sector is in demand across the country, but California leads the way with the top five markets for industrial real estate investment nationwide, said Ten-X, Irvine, Calif.

Los Angeles, Sacramento, San Francisco, Oakland and San Jose ranked as the industrial sector’s top five investment markets, the Ten-X U.S. Industrial Market Outlook said.

“While the industrial market is on the rise nationwide, the sector is particularly strong in California, which makes sense when considering demand drivers for warehouse space, most notably the increase in tech developments such as cloud computing and the legalization of marijuana in certain states,” said Ten-X Chief Economist Peter Muoio. “California is home to a booming tech industry and one of the nation’s most prosperous legal marijuana markets, creating a consistent need for industrial real estate assets.”

Muoio said the Golden State was susceptible to trade policy changes due to its large trading ports but noted investor confidence is likely to continue to improve based on progress made on the U.S.-Mexico-Canada trade agreement.

The industrial sector remains one of the strongest sectors in the industry with pricing averaging $85 per square foot in 2018, an impressive 6.25 percent increase, Ten-X said. Deal volume rose more than 20 percent year-over-year to $18.9 billion in the second quarter while market vacancies decreased slightly from 2017.

“Amid a solid backdrop for industrial demand, healthy net absorption is projected to top 10 million square feet for 2018, the fifth straight year of increase,” Muoio said. “California is dominating the nation’s industrial sector, solidifying its place as the top state for investors to purchase industrial assets.”

But not all of California’s industrial commercial real estate market is thriving, Muoio said. “While many areas of California are experiencing massive success, others are going through a downturn. For instance…California’s Inland Empire is a top ‘sell market’ due to a substantial supply pipeline that will likely increase vacancies and suppress rent growth.”