We sit down with industrial real estate expert Gary Martinez, CCIM, SIOR, of Ashwill Associates to discuss the industrial market in Southern California. Gary shares insights into market trends, cap rates, leasing opportunities, and the future of industrial properties in the region. Whether you’re an investor or an owner-user, this conversation will provide actionable tips for navigating the industrial sector in 2024.
The Industrial Market in 2024: A Booming Sector
Gary kicked off by sharing that Southern California boasts one of the strongest industrial real estate markets in the U.S., with the Inland Empire consistently ranking as a top-performing region nationwide. A key driver? The region’s unparalleled logistics infrastructure, including the Port of Los Angeles and the Port of Long Beach, which together form the 10th largest port system globally.
Southern California’s industrial market benefits from a massive population base of 18 million people and a staggering GDP of $1.6 trillion, rivaling the economies of countries like Spain and South Korea. This economic strength fuels high demand for industrial properties, particularly in warehousing, distribution, and manufacturing.
Sales Trends and Opportunities Post-COVID
The pandemic reshaped the industrial market. During COVID-19, supply chain disruptions led companies to stockpile inventory, skyrocketing demand for warehousing space. As Gary explained, prices surged during this period, but the market is now leveling off. While prices have dropped—sometimes by as much as 20-60%—this correction offers savvy investors a rare opportunity to enter the market at a discount.
Class A Properties, featuring modern amenities like high ceilings and multiple loading docks, currently trade between $315-$415 per square foot, with some smaller properties reaching $500 per square foot. Meanwhile, Class B and C properties offer more affordable options, with prices ranging from $280-$300 per square foot depending on location and features.
Leasing: A Tenant’s Market
For those considering leasing industrial spaces, Gary revealed that the market has shifted in favor of tenants. Rental rates for industrial properties in areas like Long Beach now range from $1.50-$1.75 per square foot. Properties are sitting on the market longer, giving tenants leverage to negotiate concessions like free rent, tenant improvement allowances, or reduced security deposits—something not seen since 2013.
Cap Rates and Valuations: What Buyers Need to Know
During the height of the pandemic, cap rates for industrial properties dropped as low as 3%, reflecting soaring valuations. Today, cap rates have returned to a more balanced range of 5-5.5%, with some properties trading as high as 6%. This adjustment has lowered property values, creating a buyer’s market for those looking to invest in industrial assets.
Why Now Is the Time to Invest
Gary emphasized that while the industrial market is experiencing a cyclical downturn, fundamentals remain strong. With vacancy rates at an exceptionally low 2-5%, demand is poised to rebound as the economy stabilizes. Additionally, e-commerce growth continues to drive the need for warehousing space, ensuring long-term demand for industrial properties.
One of the most compelling reasons to act now? Limited inventory. New industrial developments under 100,000 square feet are rare, and many existing properties are being repurposed for multifamily housing, further tightening supply.
Insights for Investors and Owner-Users
For owner-users, financing options like SBA loans make it easier to secure industrial properties with as little as 10% down. Investors, meanwhile, can take advantage of the market’s uncertainty to find undervalued properties. Gary shared a standout example: a property appraised at $6.7 million was purchased for $4.95 million, giving the buyer an instant equity boost of $1.6 million.
Final Takeaways
Whether you’re an investor, owner-user, or considering a pivot into industrial real estate, the current market offers unparalleled opportunities. As Gary put it, “We’re in the bottom part of the cycle for industrial properties, making this the best time to buy low and sell high.”
About Gary Martinez, CCIM, SIOR
Gary is not only a seasoned broker but also an instructor for the prestigious CCIM (Certified Commercial Investment Member) program. His expertise spans Southern California, from downtown Los Angeles to North Orange County, and he has a proven track record of helping clients uncover hidden opportunities in industrial real estate.
Gary Martinez, CCIM, SIOR https://ashwillcre.com/team/gary-martinez/
