Vacancy vs. Availability Rate: Understanding Crucial Market Metrics in SoCal Real Estate
What Vacancy Rate Reveals About Property Demand in SoCal
In the ever-evolving landscapes of commercial and industrial real estate, understanding market trends is essential for making strategic decisions. Two pivotal metrics for assessing these markets are vacancy rate and availability rate.
While often used interchangeably, these terms represent distinct factors offering critical insights into market dynamics. For investors, developers, and industry professionals, understanding the difference between these metrics is of paramount importance.
In this article, we clarify the nuances of each rate, explore their influence on decision-making, and demonstrate why both are indispensable tools for navigating the competitive Southern California commercial real estate market.
What Vacancy Rate Reveals About Property Demand in Southern California
The vacancy rate is one of the most widely used metrics in commercial real estate. It represents the percentage of rentable space that is currently unoccupied in a property or market. A simple yet powerful indicator, the vacancy rate provides a snapshot of current demand for space in a specific area.
A high vacancy rate typically signals weak demand, suggesting that tenants are either not finding suitable spaces or are opting for other locations. Conversely, a low vacancy rate indicates strong demand and can often lead to increased competition for space, particularly in prime areas.
In Southern California, where commercial real estate markets are highly diverse, vacancy rates can differ significantly between regions. For example, in the Riverside-San Bernardino region, which has seen explosive growth in industrial and logistics space due to its proximity to the ports of Los Angeles and Long Beach, vacancy rates have historically remained low. A vacancy rate under 5% in this area signifies that demand is exceptionally high, and investors or businesses looking for warehouse space may face stiff competition. On the other hand, markets like Downtown Los Angeles might experience higher vacancy rates due to changes in work-from-home dynamics, yet remain desirable due to their central location and proximity to amenities.
Availability Rate: What It Measures and How It Provides Forward-Looking Insights
In the commercial and industrial real estate markets, understanding the availability rate is essential for forecasting future trends and assessing supply dynamics. While the vacancy rate reflects current conditions, the availability rate offers a broader, forward-looking perspective. By accounting for both vacant space and space expected to become available, it enables investors, developers, and property owners to anticipate changes and make informed decisions.
Key Points to Understand About the Availability Rate:
Broader Metric: The availability rate includes both unleased space and space that is expected to become available in the near future, such as from lease expirations or planned renovations.
Calculation: To determine the availability rate, add the amount of unoccupied inventory to the space that will soon be available, such as leased areas set to expire, and then divide by the total rentable space. For example, if a building has 10,000 square feet of vacant space and 15,000 square feet with expiring leases, the availability rate would be 25%.
Market Dynamics: A rising availability rate indicates that more space will become available soon, which could lead to increased competition for tenants and potential shifts in market conditions.
Signs of Demand Shifts: A high availability rate can suggest weaker future demand or that landlords may need to offer more favorable terms to attract tenants.
The availability rate is crucial for understanding market dynamics across Southern California. In industrial real estate, areas like the Inland Empire are experiencing growth driven by demand from e-commerce and supply chains. As new spaces become available in the market, the availability rate may rise.
However, if demand softens, it could signal oversupply and prompt market adjustments. In office and retail sectors, locations like Santa Monica and Beverly Hills may see fluctuating availability rates as businesses adapt to remote work trends. Increased availability could indicate market transitions or potential oversupply, necessitating a reassessment of strategies.
How Combining These Measures Offers a Complete View of the Southern California Market
While each metric provides valuable insights individually, understanding the relationship between the vacancy rate and the availability rate is key to obtaining a holistic view of the market.
The vacancy rate provides a snapshot of current demand, but the availability rate allows for a broader analysis by including properties that are about to be vacated. This distinction helps investors, developers, and tenants make more informed predictions about future trends.
When vacancy rates are low but availability rates are high: This could signal that there is high demand currently, but that an influx of available space will soon be introduced. This combination might suggest that the market could face an oversupply in the near future, leading to potential changes in pricing or terms for tenants. For instance, if a market with low vacancy rates is anticipating a large number of lease expirations or new developments, an uptick in the availability rate could signal a cooling of the market.
When vacancy rates are high but availability rates are low: This indicates that the market is currently struggling with weak demand but does not expect much change in the near future. In this scenario, landlords may have to lower rents or offer additional incentives to attract tenants. Conversely, a market with elevated vacancy levels and high availability rates may signal a transition period, where landlords are adjusting to shifts in demand and offering flexible leasing terms.
The availability rate is crucial for understanding market dynamics across Southern California. In areas like Ontario, with its proximity to major highways and Ontario International Airport, industrial real estate is growing due to strong demand from e-commerce and logistics. As additional spaces become available, the availability rate may rise.
When analyzing the broader Southern California market, these metrics offer valuable insights, particularly given the region’s diverse real estate landscape. For example, a rising availability rate in major industrial hubs could signal a potential slowdown, while a low vacancy rate in areas like Orange County might suggest growing demand for tech space as businesses look to establish a stronger presence.
How to Strategically Navigate Southern California’s Commercial and Industrial Real Estate Market
Partnering with industry experts like The Klabin Company can significantly elevate your decision-making process — with over 60 years of experience specializing in the Southern California industrial and commercial markets, we are dedicated to delivering unparalleled service and expertise tailored to your needs. Our deep knowledge of local market dynamics, coupled with our commitment to integrity and innovation, equips our clients with critical insights into emerging trends and opportunities. We prioritize transparency and collaboration, ensuring that your strategy aligns seamlessly with your business’s growth and operational objectives. By leveraging our extensive network and expertise, you can navigate the complexities of the market to position your business for sustained success in this dynamic and competitive environment.
This blog post is provided for informational purposes only and does not constitute legal, financial, or professional advice. Real estate laws and regulations vary by jurisdiction, and the information herein may not be accurate or applicable to your specific situation. Before making any real estate decisions, consult a qualified local real estate attorney, financial advisor, or other relevant professional. The Klabin Company is not liable for any actions taken based on the information in this article.