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Deep-pocketed investors are betting Southern California industrial real estate has hit bottom. After two portfolio deals totaling more than $3B closed this year, institutional buyers are pursuing large-scale acquisitions across the region, drawn by discounted pricing, motivated sellers and expectations that rent growth will eventually return.
The trend has already produced a pair of blockbuster transactions: BKM Capital Partners and Kayne Anderson Real Estate’s $1.8B purchase of a Blackstone-owned light industrial portfolio and Rexford Industrial Realty’s $1.2B sale to EQT Real Estate.
Brokers involved in both deals say the same forces driving those sales continue to fuel the market, with sellers under pressure to dispose of assets and well-capitalized investors viewing Southern California’s rent correction as a rare opportunity to acquire industrial properties below peak valuations before fundamentals improve. Several more large portfolio trades are already in the pipeline, according to CBRE Vice Chair Darla Longo and Executive Vice President Joe Cesta.
“When you look at a capital group like EQT that’s putting out a billion dollars into a given transaction, they’re doing that because they believe that there is going to be rent growth across this portfolio,” Cesta said. “They’ve analyzed these assets and these markets in such a way that they have strong conviction that that will take place.”
Roughly half of the assets BKM and Kayne bought — 27 of the 51 properties in the portfolio — are in California, and 3.1M SF of the total 4.6M SF in the state are in the Inland Empire, Los Angeles or Orange County. Rexford focuses on Southern California exclusively.
Both transactions involved sellers with a shot clock to sell off certain assets.
The Link Logistics sale to BKM and Kayne involved a closed-end Blackstone fund that had a time frame in which assets had to be sold, and this off-market deal allowed it to meet that goal, Longo said.
Rexford announced in the second quarter that it would sell off between $1.5B and $2B in assets by the end of 2026, an increase from the previously announced $400M to $500M it had projected selling at the end of the first quarter. Many of the properties it had tagged for sale were bought at peak prices, Rexford Chief Financial Officer Maurice Fitzwilliam said at the time, though it is unclear how many of those properties made it into the $1.2B portfolio it sold to EQT.
“Capital’s belief is that Southern California is on sale, and candidly, it is,” Longo said.
The region was hit hard by rent declines in recent years on top of other factors that impacted the industrial market’s fundamentals broadly.
The average asking rent in Q3, $1.19 per SF, represented a year-over-year drop of 4% and a roughly 30% decrease from Q3 2023’s average asking rent of $1.71, according to CBRE’s third-quarter report for the Los Angeles market. Average asking rents in the Inland Empire were $1.08 per SF in the third quarter, down from roughly $1.50 per SF in Q3 2023 and just over $1.10 per SF the same time a year before.
Volatility in the debt markets has made these deals a little more challenging to execute, Cesta said. Others in the industry have sounded the alarm about the impact that high borrowing costs and general macroeconomic turbulence could have on dealmaking.
But these types of deals, while more challenging, aren’t impossible.
“There are still institutions out there that have a large book of assets that they need to sell, and there still is capital out there that has a desire to be buying, and to be buying in large chunks, because they have a lot of capital to deploy,” Cesta said.