Trammell Crow Co. and Clarion Partners have completed The Center at Needham Ranch, a 1.7 million-square-foot industrial park in Santa Clarita, Calif.
Construction on the 11-building project began in 2017. By May 2023, CANR was fully leased.
Tenants include DrinkPAK, LA North Studios, Illumination Dynamics, US AutoForce and Amazon, according to CommercialEdge data. The buildings also include office space.
The joint venture partnered with the city of Santa Clarita to also construct and open the Needham Ranch Parkway, which was part of the 250-acre development. It provides motorists an alternate route between Newhall Avenue and Sierra Highway.
“Construction of the Parkway was part of the development agreement with the city and was funded by TCC; this type of agreement is often commonplace with major development projects of the size and scale of CANR,” Philip Tsui, senior vice president at TCC, told Commercial Property Executive.
“In our case, the parkway was the main street arterial that provides direct access to the buildings in the project.”
LA North has a ‘deep and talented’ labor pool
Needham Ranch has filled the demand for modern, Class A logistics space in the Santa Clarita Valley, and more specifically in the L.A. North industrial submarket, which continues to see demand from industrial users because of the area’s deep and talented labor pool and the overall quality of life in the Valley, according to Trammell Crow.
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Oltmans Construction Co. served as the general contractor for CANR. The project’s architect was HPA Inc. and the civil engineer was Alliance Land Planning & Engineering.
A CBRE team of Craig Peters, Cameron Merrill, Doug Sonderegger, Sam Glendon and Richard Ramirez marketed and leased the facilities.
Earlier this summer, Trammell Crow signed China-based wholesale distribution company JW Fulfillment to a full-building lease at Arsenal Trade Center, a 1 million-square-foot logistics center at 99 Callahan Blvd. in Sayreville, N.J.
LA’s industrial market is ‘resilient’
Mark Detmer, senior managing director at JLL Capital Markets told CPE the Los Angeles and Inland Empire industrial markets are showing signs of resilience, with an increase in demand for space and a slowdown in the development pipeline.
“While investors closely monitor leasing market fundamentals, the lending market remains relatively constrained,” Detmer said. “Nonetheless, certain segments of the market show encouraging signs as new capital forms for acquisitions and treasury rates begin to stabilize.”
“With the market approaching a turning point, we anticipate a stronger and a brighter outlook on the horizon for the Los Angeles and Inland Empire industrial market,” Detmer added.
Industrial asset prices in LA rise
This comes at a time when the industrial development pipeline nationally has shrunk for six consecutive quarters, according to CommercialEdge. That followed two years of record-level deliveries.
Demand for industrial assets remained strong in Southern California, with the average sale price of an industrial property up 12.9 percent over 2023, CommercialEdge data shows. This attraction comes mainly from the Ports of Los Angeles and Long Beach—by far two of the busiest in the nation for volume.
Rent growth in Southern California’s ports has recently come into question. Newmark Managing Director of National Industrial Research Lisa DeNight recently pointed out that there has been a clear connection between that hyperinflationary rent growth in Southern California and an ascendancy of these more attractively priced but very easily accessible inland intermodal hubs in the Southwest, such as Salt Lake City, Las Vegas and Phoenix.
Another headache in Southern California ports is electricity as the Port of Los Angeles’ transition to green technology “is on the blink,” according to The Wall Street Journal.
Cranes and other cargo equipment as well as crucial automated gates there are getting knocked out during some power surges and lulls due to the port’s dependence on the electric grid.
Operators there are wondering how they can achieve a mandate to phase out diesel-powered machinery by 2030 when today’s power supply is so unreliable.
Seven consecutive occupancy losses in LA
In Los Angeles, CommercialEdge reported that industrial rents were $14.80 per square foot in June, up 12 percent year-over-year, and the vacancy rate was 7.7 percent. The national average is $8.04 per square foot, with a 6.1 percent vacancy rate.
Earlier this year, Rexford paid $1 billion for 3 million square feet across 48 properties in Los Angeles and Orange County. The seller was Blackstone.
The Inland Empire has seen a surge of new supply in recent years; however, Los Angeles and Orange County are very constrained by the availability of land, CommercialEdge reported.
Meanwhile, Cushman & Wakefield reported that the second quarter of 2024 marked the seventh consecutive quarter of occupancy losses in L.A. Its overall vacancy rate increased 90 basis points quarter-over-quarter and 240 basis points year-over-year to 4.5 percent in the second quarter of 2024, the highest recorded rate in the past decade.
Nine quarters ago, L.A. reported a sub-1 percent vacancy rate, according to Cushman & Wakefield; now, vacancy rates are above 3.5 percent in every submarket except L.A. North, where it was 2.5 percent in the second quarter. Two markets are over 5 percent, a rate not recorded in the past 10 years.
Cushman & Wakefield also reported that construction activity in the L.A. industrial market hasn’t slowed. At the end of the second quarter of 2024, there were 52 properties under construction market-wide, totaling 7.2 million square feet. All but three properties are being developed on a speculative basis.
Of the buildings being built on spec, only two have been preleased as of the second quarter of 2024, leaving 96.2 percent of the 6.8 million square feet under construction without tenant commitments thus far.
“If leasing activity doesn’t continue to add velocity, the surge in new vacant supply will likely push vacancy higher,” Cushman & Wakefield said in its report, with eight buildings totaling 2.2 million square feet having completed construction in the second quarter, of which only 15.4 percent was preleased.