The 2022 commercial real estate market continues to perform mixed with some big developments adding a touch of light in the dark. Voit Real Estate Services Market Report Q1 2022 on Southern California (SoCal) It reveals where California is struggling and where the state has improved since the previous year.
Read on for details on how the industry, office, and retail are performing in SoCal’s key markets.
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industrial space It remained a bright spot for commercial real estate in the first quarter of 2022. Vacancies and availability declined, and growth was achieved across the industrial sector. The Inland Empire has seen a much-needed 618 million square feet of inventory increase – an advantage of being a thriving distribution center.
vacancy rates It continued to decline across SoCal markets in the first quarter of 2022, dropping to:
- 2.1% in San Diego, down from 4.3% a year earlier;
- 1.3% in Orange County, down from 2.5% a year earlier;
- 1.1% in Los Angeles, down from 2.6% a year earlier; And
- Only 0.7% in the Inland Empire, down from 2.7% the previous year.
Today’s industrial vacancy rates are very low – essentially zero. With so few alternatives available, industrial tenants are increasingly forced to renew their lease contracts.
Availability of industrial property – property for sale or rent – also continued to decline in the first quarter of 2022, declining to:
- 3.0% in San Diego, down from 6.2% a year earlier;
- 2.4% in Orange County, down from 4.0% a year earlier; And
- 1.4% in the Inland Empire, down from 3.4% a year earlier.
Los Angeles has the distinction of being the only area where industrial property availability remained essentially flat in the first quarter of 2022. In the quarter, 2.3% of Los Angeles industrial property was available compared to 2.2% the previous year.
building It was a highlight of the Inland Empire – making it SoCal Market most famous for the building movements. At an all-time high, 28 million square feet of industrial projects are under construction in the Inland Empire, up from 23 million square feet under construction in the fourth quarter of 2021. Orange County and San Diego also saw an increase in new industrial projects in Q1 2022. .
In contrast, Los Angeles is still struggling with new construction with little space to build.
net absorption – Overall change in occupied area – Remained positive across SoCal, coinciding with higher industrial demand. In the first quarter of 2022, uptake in all counties was positive:
- 4.4 million square feet in the Inland Empire, down from 5.1 million in the previous year;
- 1.6 million square feet in Los Angeles, down from 3.5 million square feet in the previous year;
- 1.1 million square feet in Orange County, up from 541,000 the previous year; And
- 731,000 square feet in San Diego, up from 273,000 square feet the year before.
SoCal’s narrow industrial market will remain highly competitive as long as construction continues to catch up. The market has not been able to meet demand since the pandemic first fueled a growing need for industrial space, in what was already a space-constrained market.
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The office side of the market has seen a gradual respite after its previous pandemic decimation, but availability and vacancy rates remain high – even with slight improvements in the first quarter of 2022.
Empty Rates remained high – even as they stabilized and declined in the first quarter of 2022, when:
- 2% in Orange County, compared to the previous year; And
- 2% in San Diego, down slightly from 12.9% a year earlier.
Availability Office space in the first quarter of 2022 fell to 16.4% in San Diego. For reference, this is down from 18.5% in the previous year. Likewise, availability in Orange County decreased slightly to 17.1% from 17.3% a year earlier. Percentages, like their vacancy rate counterpart, declined, but remained high regardless.
The high levels of vacant and available office space are most evident when compared to the low rates of industry and retail. 2022 sees small steps towards stability so far with positive San Diego vision net absorptionHigh rental rates and reduced availability. Orange County has also taken steps toward stabilization since the fourth quarter of 2021 — seeing improved net uptake levels.
However, the office sector has experienced massive pandemic losses, and recovery still has a long way to go. Smart landlords know: As office space needs change during the pandemic, their office space landlords will adjust their physical office space to adapt to the pandemic’s impact on current demand. While the balance has not returned in full since the push toward telecommuting and hybrid, a Voit market report for the first quarter of 2022 indicates that less than half of office workers have returned to the office.
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sectoral
The start of 2022 saw continuous improvements in the retail space. Net uptake has been positive, but vacancy rates are still above pre-pandemic levels, according to Voit.
In the first quarter of 2022, the San Diego retail space saw the following:
- a Empty rate of 4.8%, down from 5.5% a year earlier; And
- a Availability and by 4.8%, down from 5.9%.
Session economics made all the difference, but the success of retail real estate is all about location – leaving some real estate obsolete.
Despite this, the sales volume is still relatively good for retail rental transactions decreased, indicating low demand. Moreover, the pandemic has accelerated what was already a growing consumer reliance on e-commerce. Retail will gradually shrink in the coming years, as property owners convert their space into mixed-use properties or other types of properties that are in high demand.
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