Key Takeaways
- Los Angeles County industrial availability is just under 10%, up roughly 75% from 5.5% before Covid and almost 4x its spring 2021 level.
- Asking rents are still about 30% above pre-Covid levels and have come down only 20% from their 2022 peak.
- Rents are “sticky” because landlords share pricing through the brokerage community, lenders and investors resist cuts, and owners give concessions instead of lowering asking rents.
- Our advice: don’t accept asking rents at face value. Test the market, including subleases, with an advocate like Hughes Marino who works only for tenants.
By now, you, as a business owner or operating executive, can likely tell that industrial real estate here in Los Angeles County is much softer than it’s been in recent years. But how bad is it really for building owners? The chart below shows industrial availability (including buildings for lease under construction, not yet vacant and for sublease) and asking rents going back 10 years to reveal what is happening in Los Angeles.
What 10 Years of Los Angeles Industrial Data Show
Historically, Los Angeles industrial markets have trended in an economically rational manner—as availability went down, asking rents went up. However, since 2022, the Los Angeles industrial market has violated all economic norms:
- Just as availability was spiking in 2022 due to new construction coming online for lease, as well as a spike in sublease inventory, landlords and their brokers continued to raise asking rents for almost another two years.
- Today, availability is up roughly 75% from the pre-Covid 2020 cycle, moving from 5.5% to just under 10%, yet asking rents are 30% higher than they were then.
- Worse, availability today is almost 4x what it was back in the spring of 2021, but asking rents have only come down 20% since their 2022 peak.
If the market is that tenant-favorable, why are tenants still expected to pay so much in rent? Why are landlords struggling to lease roughly 75% more industrial space than they had pre-Covid, yet prices have not collapsed to their pre-Covid level…or less?
How Prices Are Set
Landlords don’t coordinate pricing, but they do share a tremendous amount of information through the brokerage community and anchor off each other’s pricing. With the Los Angeles brokerage community largely working for landlords, or too frequently acting as dual agents representing both landlords and tenants in the same transactions, landlords have full transparency into what each other is doing in real time. Brokers publish almost every lease transaction within their own internal databases. Those databases are then shared across their entire brokerage firm, and that data is traded with other brokers and shared with other landlords that those same brokerage firms represent. Tenants’ lease terms circulate widely, and Los Angeles landlords generally know who’s completing transactions and at what terms.
Brokers Price-Support the Market
The brokerage business was built over a century ago to provide leasing, property management, investment sales, capital markets, appraisal and any other imaginable service that a building owner or developer might need…not to represent tenants in a transparent or independent way. Over time, serving tenants became a byproduct of those core landlord services, all while commercial real estate brokers support landlords in their pricing and valuation objectives.
Yes, that representative who does the building’s leasing always knows what’s available, but their much larger and longer-term core customer is the building owner, and they aren’t going to work against that relationship to get the tenant the best rates possible. They cannot aggressively test their own landlord’s marching orders or magical bottom line when market conditions deteriorate. Worse, the tenant working directly with the landlord or through the landlord’s listing team has no leverage, no legitimate relocation options and little real information about what can truly be done in that building or elsewhere. For building owners and their brokers, it’s all about holding the line to maximize the value of the real estate, which comes through monetizing tenants’ rent streams. In that model, tenants’ rent streams are valued primarily for what they do for the asset.
Lenders and Investors Sometimes Set a Floor
Beyond the owners and landlord brokerage firm players that set prices and support them, there’s a structural problem that prevents landlords from just lowering their rents, even if they wanted to. Most commercial real estate buildings have outside investors and debt, often requiring lenders to approve leases. Those investors have been promised a certain return and are very slow to accept price reductions. When the market softens, some landlords simply maintain their pro forma asking rents or now advertise their offerings as “withheld” or “negotiable,” while offering significant free rent packages, lease assumptions and other financial concessions that are necessary to keep or win new tenants, all without ever lowering their posted asking prices.
The Role of Price Stickiness
Price stickiness occurs when market prices resist change despite a major oversupply of that product. As a business leader or owner, you have likely experienced many situations where prices go up faster than they go down. Consider the costs of labor, insurance, shipping—all things that quickly respond to upward price pressure but are very slow to recede. Having charged historically high prices at $1.50–$1.70/SF for warehouse space in the 2021–2024 window, many Los Angeles landlords are still pricing to those levels. Getting the market back down to $1.00–$1.05/SF (the pre-Covid price) faces massive structural and psychological resistance.
Where It Ends and What to Do
What all of this means for tenants is that you can’t believe landlords’ asking prices at face value, nor the brokers who are promoting them, using them as a “market comp” anchor to push tenants into mediocre leases. The Los Angeles industrial market is much more favorable to tenants than business owners and executives running companies understand. But you have to get into the market and test your options to force a process of price discovery, including looking at one of the many subleases that are likely available, rather than thinking that asking rents are any reflection of the market we are actually in. All of that requires a dedicated advocate, who acts only on behalf of the tenant and doesn’t work for landlords or a full-service brokerage firm whose business depends on building owners in an industrial market that’s in decline.
That’s the only way we work. Hughes Marino specializes in representing tenants and buyers, not landlords, with no conflict of interest. If you lease industrial space anywhere in Los Angeles County, talk with our team before your landlord’s asking rent becomes your starting point.
Frequently Asked Questions
Los Angeles County industrial availability is just under 10%, including space under construction, not yet vacant and for sublease. That is up roughly 75% from about 5.5% before Covid in 2020, and almost 4x the level of spring 2021.
In our experience, three things hold rents up: landlords anchor off each other’s pricing through information shared in the brokerage community, lenders and investors resist cuts that hurt promised returns, and prices are “sticky” on the way down. Many landlords give free rent and other concessions instead of lowering posted asking rents.
Asking rents have come down only about 20% from their 2022 peak, and they are still about 30% higher than before Covid, even though availability has risen roughly 75% over the same period.
Before Covid, Los Angeles warehouse space rented for about $1.00–$1.05 per SF. Landlords charged historically high rents of $1.50–$1.70 per SF from 2021 to 2024, and many are still pricing to those levels.
Don’t take asking rents at face value. Test the market to force real price discovery, including the many subleases that are likely available, and work with an advocate who represents tenants.
Market statistics provided by CoStar Group.
