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Global warehouse vacancies hit 5.2 % in Q1 , the highest in three years but still below the pre-pandemic average . Shutterstock . com

Southern California warehousing demand lagging import surge , for now

By William B . Cassidy

Containerized imports are on the rise in Southern California , although so too are warehouse vacancy rates .

Logistics real estate developer Prologis in mid-April said a “ pronounced period of correction ” for warehousing is still underway in Southern California , with vacancy rates rising despite the surge in imports in the first quarter .

In Los Angeles , vacancy rates currently are 4 %, Prologis said . That ’ s below the long-term Prologis average of 6.4 %, but an increase from rates that dropped to 2 % or lower in Southern California and the Inland Empire at the height of the pandemic in 2021 and 2022 .

“ The overall leasing slowdown is most felt in only a handful of markets .”

Global industrial real estate vacancy rates hit 5.2 % in the first quarter , the highest in the last three years but still below the pre-pandemic average , according to Warehouse- Quote . The company ’ s National Warehouse Pricing Index , which measures average storage costs across the US , has dropped each month since November .

But warehousing vacancy rates may change quickly as demand comes back to Los Angeles and Long Beach , Prologis executives said during an earnings call April 17 .

The National Retail Federation , in its April Global Port Tracker compiled with Hackett Associates , said it now expects US imports for the first six months of the year to increase 11 % over the same period last year .

Ocean carriers have signaled their belief that US consumer buying will remain strong into the second half of the year by announcing the launch or restart of 11 services involving the trans-Pacific and north – south trades .

Shifting volumes , soft demand

The macro-economic environment and supply chains “ continue to generate a need for space ,” according to Prologis , but some warehousing markets , especially Southern California , appear to be lagging .

“ The overall leasing slowdown is most felt in only a handful of markets , Southern California and the Inland Empire being the most acute ,” Prologis CFO Timothy D . Arndt said during the call . Rents in most US markets are flat , although in some they are up , he said .

US imports from Asia of 1.31 million TEUs in March were up 22.4 % from the year-ago month , according to PIERS , a sister product of the Journal of Commerce within S & P Global . That followed year-over-year gains of 38.8 % in February and 17.8 % in January .

In Southern California and the Inland Empire — where warehouse and distribution center construction activity has been relentless for years — market softness that took root last year continues .

“ The softest area of Southern California is midsized and smaller units in the Inland Empire ,” said Chris Caton , managing director of global strategy and analytics at Prologis . “ The strongest area is probably Orange County .”

Prologis floated a few reasons for the continuing softness in the region , including a shift in some container volume to ports on the East and Gulf coasts , lower container volumes in 2023 , and a large presence of third-party logistics providers in the area .

32 Journal of Commerce | May 6 , 2024 www . joc . com