A closer look at the economic forecast for 2022

The Greater Los Angeles industrial market has undoubtedly seen a remarkable change over the past year. Strong fundamentals, including occupancy gains and construction activity, reached astronomical highs, and many Southwest regional markets posted historically low vacancy rates. As a result, Los Angeles remains one of seven markets with robust absorption levels, among other major players such as the New York metro area, Columbus and Philadelphia.

Regionally, we see a recurring theme of scarcity. Our tight markets suggest a strategic race for developers and owners as we maneuver the limited land available for development. Added to this trend are high rental rates, at over $1.24 NNN per square foot. We are, again, in a dominant market with year-over-year requested rent increases exceeding 44%.

The record levels of industrial product under construction in the United States further demonstrate the region’s activity. A substantial 477.2 million square feet of industrial space was under development at the end of the fourth quarter of 2021, and the top 25 markets account for 76% of all industrial stock. Greater Los Angeles, Dallas-Fort Worth, Atlanta, Indianapolis and Chicago have reported more than 20 million square feet under development. At the same time, construction activity in Orange County remains strong, recording an increase of 3.2 million square feet and closing the fourth quarter of 2021 with 1.5 million square feet of rental and sales.

Other impact notes here are vacancy rates. Our market had the lowest vacancy rate at 0.93% and is one of the few to have velocities below 1%. The Los Angeles industrial market is positioned as the largest in the United States, characterized by some of the highest rents and lowest vacancy rates of any market in the country.

The opportunity this region offers to investors is imperative in the development discussion. In conjunction with heavyweights like New York, Boston and San Francisco, projections rely heavily on Los Angeles remaining a top investment destination for 2022. Investors are strongly encouraged by market liquidity today. today, with debt and equity widely available. Investors are also moving along the risk spectrum in the same magnitude, with value-added games becoming increasingly common.

With extreme changes in the investor sphere, consumer rates are an important consideration. Consumer prices rose 0.5% in December 2021, pushing the rise in the cost of living last year to a nearly 40-year high of 7%, indicating that high US inflation is likely to persist until ‘in 2022. A separate measure of consumer inflation that volatile food and energy prices rose 0.6% last month, reinforcing the rise over the past 12 months to 5.5 % vs. 4.9% – a 31-year high.

Due to strong customer demand and labor and supply shortages, price pressures are likely to ease in 2022. Economists estimate the inflation rate will exceed 3% by the end of 2022. end of the year.

Mike Kendall is Executive Managing Director, Investment Services, Western Region for Colliers.

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