Southern California Tops U.S. in Industrial Warehouse Rents

Southern California has emerged as the most expensive region in the United States for industrial warehouse rents, according to a recent report from Commercial Cafe. As of September 2023, the costs associated with leasing warehouse space in this region have surged, reflecting the area’s critical role in logistics and distribution.

Orange County leads the nation with an average industrial lease cost of $17.09 per square foot, marking a significant increase of 7% over the past year. For new tenants, the average rent escalates even further to $19 per square foot, the highest in the country. Following closely is the Los Angeles market, where average rents are $15.59 per square foot, up 5% year-on-year. New leases in Los Angeles average $14.88 per square foot, ranking sixth nationally.

In contrast, the Inland Empire, which includes Riverside and San Bernardino counties, offers relatively lower rents at an average of $11.65 per square foot, making it the seventh-highest in the nation. This figure represents an 8% increase from the previous year. For new leases in the Inland Empire, the average price is $14.58 per square foot, also ranking seventh among major U.S. markets.

The skyrocketing costs in Southern California highlight the region’s logistical significance, particularly due to its proximity to the Los Angeles/Long Beach ports, one of the largest shipping hubs in the world. The demand for warehouse space is driven by the need to support the logistics networks essential for the nation’s second-most populous area. This high demand helps explain why vacancy rates remain relatively low; the Inland Empire has a vacancy rate of 7.7%, ranking eighth lowest among the thirty markets studied. Orange County’s and Los Angeles’s vacancy rates are also modest at 8.2% and 8.3% respectively, both below the national average of 9.5%.

As a result of these dynamics, property sales in Southern California have soared. In the first nine months of 2023, industrial properties in Orange County sold for an average of $306 per square foot, the second-highest price in the nation, following Detroit at $624. This valuation is more than double the national average of $142 per square foot. Similarly, Los Angeles warehouses averaged $282 per square foot, ranking third, while properties in the Inland Empire sold for $234 per square foot, placing sixth nationally.

The report illustrates the significant impact of demand and limited supply on industrial real estate in Southern California. With the region’s unique logistical challenges and opportunities, it is likely that these trends will continue, making Southern California a focal point for businesses seeking warehouse space in the United States.