In the wake of wildfires that burned more than 11,000 buildings across Los Angeles County, real estate professionals are preparing for an influx of materials and equipment with the potential to not only rebuild what was lost, but also revive the region’s industrial market after years of diminished demand.
The yearslong process will help fill existing vacancies in Los Angeles, generate new development and push some companies to expand in and beyond the nation's most populous county, according to Kenneth Sheer, founding partner and CEO of Dallas-based Covington Group, owner of 16 industrial properties across Los Angeles.
"So much has been destroyed with a lot that has to be replaced immediately," Sheer told CoStar News. "It's not just the rebuild in the sense of lumber, steel, roofing products, concrete. You're also talking about wire for the electrical, all the plumbing supplies, all the all the conduit" and other infrastructure work that's needed.
Multiple fires around Los Angeles County have killed at least 28 and burned more than 50,000 acres over the past three weeks, with analysts estimating economic losses at more than $250 billion.
The devastation comes as the Los Angeles' industrial vacancy rate is 6%, up from 4% a year ago, according to CoStar data. Industrial tenants have given back 11 million more square feet than they leased in the past year and rents are down by 5%, according to CoStar data.
IOS — or industrial outdoor storage — properties where equipment including cranes, bulldozers, lumber and other materials can be stored will see the biggest surge in demand, according to Taylor Arnett, senior vice president at Newport Beach-based development firm CapRock Partners, owner of 10 industrial properties in the Los Angeles area and 19 million square feet nationwide. The sector, much like the overall industrial market, has a high vacancy and declining rents because of COVID-19 pandemic-era overbuilding and overinvestment, Arnett said.
"Rebuilding is not likely to prompt a reversal in LA’s decade-high and still rising industrial vacancy rate, but it could be the kick in the pants to an otherwise still-struggling market," said Jesse Gundersheim, CoStar senior director of market analytics.
Rebuild, restock
The number of homes destroyed in the fires is about equal to the number that Los Angeles builds in a year, Gundersheim explained.
Clean-up efforts and a jump in local housing construction on that level would lead to a significant inflow of equipment and building materials that could fill industrial space, he added.
But not all owners of lost homes will begin rebuilding immediately, Gundersheim said. And some residents might take their insurance settlement and leave the area entirely.
Following the Tubbs fire that destroyed over 3,000 homes in Northern California in 2017, few new homes had been completed a year after the fires, despite expedited building approval measures.
More rebuilding projects were completed in about three years, and it took five years and even longer for some, particularly in areas where the terrain was uneven, as it is in the areas damaged by the Palisades and Eaton fires, Gundersheim said.
State and city leaders have issued directives cutting red tape to speed development. Even so, the process or building a new home could take more than two years, authorities say.
Yards are key
Warehouses with 1 to 5 acres of outdoor space for equipment — such as the yards that make up industrial outdoor storage properties — will be ideal for tenants that are serving the rebuilding process, Arnett said.
The Los Angeles market for industrial outdoor storage properties has seen rent growth stagnate after a surge of investment and tenant activity in the sector after the pandemic left the market with too much vacancy, Arnett said.
"It's actually going to plug a great gap in the market and further tighten up vacancy rates in that sector," Arnett said.
More speculative and built-to-suit development will occur as expanding tenants have trouble finding exactly what they need, Kenneth Sheer predicted. Covington and many other industrial developers are sitting on entitled land with building plans ready to go in those areas, he added.
"It's not a matter of can it be built," Sheer said. "It's a matter of can the state cut through [its] red tape to accelerate this and hire more people in [its] building departments that are given the greenlight to fast-track."
Demand outposts
Some industrial tenants will need to expand further away from the ports to meet growth goals, Sheer said.
"There's definitely not enough vacant space to accommodate this demand in the areas that would be most strategically efficient," Sheer said.
Owners of properties close to the west side and the foothills of Los Angeles County will see the most activity, Arnett said.
Areas like North Los Angeles County, Antelope Valley and Santa Clarita could benefit due to available entitled land and proximity to high-demand areas like Pasadena and West LA, Sheer said.
Though industrial leasing volume has slowed since the pandemic-fueled boom in 2021, the sector is showing signs of rebound ahead of any rebuilding efforts.
The Port of Los Angeles had its second most active year ever in 2024, moving 10.3 million container units, up 20% from 2023. That’s the largest year-over-year gain recorded at the 117-year-old port, according to executive director Gene Seroka.
Industrial activity and potential construction demand comes under the shadow of potential tariffs and trade restrictions under the new Trump administration that could slow activity and create uncertainty, experts said.