Vacancies Grow in LA While Imports Decline

The relationship between imports entering the ports of Los Angeles and Long Beach and industrial vacancies in Los Angeles is long established. A fall in the volume of goods unloaded at the ports will lower demand to store, process and redistribute goods locally. However, the recent volatile swings in trade flows are unprecedented, and some industrial occupiers have had to downsize or altogether cease operations.

The troubles began in late 2018, when U.S. and China trade relations soured and both countries adopted tariffs on imports. The ports of Los Angeles and Long Beach handle the lion’s share of the nation’s imports from China, and due to higher tariffs, inbound loaded containers entering L.A.’s twin ports fell by 5.5% in 2019. The Los Angeles industrial market was still extremely tight, ending 2019 with a 2.2% vacancy rate.

However, demand began to soften early in 2020, just before many parts of the economy shut down for the pandemic.

Good times began again as consumer demand for goods spiked. Imports rose sharply and the supply-chain issues that impacted production further drove demand to L.A.’s industrial properties because firms needed to store those intermediate goods that were available. Firms expanded warehousing capabilities, causing the vacancy rate in Los Angeles to fall to a record low of 1.8% in the first quarter of 2022.

Many parts of China, including Shanghai, remained shut down for a large portion of 2022. Months of restrictive policies there affected trade flows locally. Loaded inbound containers entering through L.A.’s twin ports fell by 7.5% in 2022, and the industrial vacancy rate in Los Angeles has been rising.

But China announced its plans to reopen the economy in December 2022, and if demand remains as sensitive to trade as it has been in recent years, China’s reopening could portend a strong recovery in the local industrial market with dropping vacancy rates.

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