Factor #2: New Construction Remains Uncertain
Given the high demand for industrial space in greater Los Angeles, it would seem like the perfect opportunity to add to the area’s industrial footprint via new construction. However, economic headwinds and supply chain issues delayed progress on that front in 2022.
A hike in interest rates, plus a continued climb in construction costs, gave some developers pause. Additionally, supply chain issues created delays in receiving materials. In a Commercial Observer article, some developers reported waiting 12-16 months for materials that would ordinarily take 3-5 months to arrive. The backlog continued into late 2022, extending to items like security systems, delayed for lack of crucial semiconductors, which have remained scarce globally.
Additionally, while 3.1 million square feet of industrial space was under construction coming into 2022, 42% of it was already preleased, according to a CBRE report, further underlining just how tight the market was in 2022.
In other words, it doesn’t look like new construction is poised to solve the space squeeze in Los Angeles anytime soon.