Prologis Begins New Industrial Project in California’s Smallest City

Construction is underway on the two-building Prologis Vernon Business Center, south of downtown Los Angeles. Rendering: Newmark Knight Frank

Prologis Inc., the largest U.S. owner and operator of industrial real estate, started construction on a two-building project in the Los Angeles suburb of Vernon, California’s smallest incorporated city. It’s the latest move by developers racing to add space to one of the nation’s tightest industrial markets.

Dubbed Prologis Vernon Business Center, the two new buildings are designed to span about 114,000 and 232,000 square feet, with each including more than 10,000 square feet of office space at 5215 S. Boyle Ave. near downtown Los Angeles in the center of Los Angeles County.

“New construction is extremely rare in this area, as land is very hard to come by,” said John McMillan, vice chairman in the El Segundo office of brokerage Newmark Knight Frank, which is handling leasing for the project. “Additionally, Vernon is one of the lowest-cost cities in the county to do business in for industrial occupiers.”

McMillan said that should help attract a variety of potential tenants, possibly including e-commerce companies seeking “last mile” locations for distribution of items ordered online.

Vernon is a 5.2-square-mile industrial city located about five miles southeast of downtown Los Angeles. According to its website, Vernon currently houses more than 1,800 businesses employing 55,000 people, in industries including logistics, food and agriculture, apparel, steel, plastics and home furnishings. Vernon’s residential population was 113 as of 2017, making it the smallest incorporated city in California by population, according to U.S. Census data.

The vacancy rate in Vernon’s 82.6 million-square-foot industrial market is only 3.6 percent, according to CoStar. That’s higher than the Los Angeles market’s industrial vacancy rate, which is among the tightest in the country at 1.1 percent, according to a recent report from Newmark Knight Frank.

A statement from Newmark Knight Frank said brokers already have received “a significant amount of interest” from potential occupiers seeking large blocks of modern industrial space in central Los Angeles County. As of late 2018, the average Los Angeles County industrial facility with at least 100,000 square feet of available space was built in 1979, according to the brokerage.

It’s pushed developers to scour the Los Angeles market for buildable sites, with landlords expected in coming months to continue capitalizing on the conditions by raising rents for tenants willing to pay a premium for modern space, brokers said.

San Francisco-based Prologis officials did not return requests for comment, and a Newmark Knight Frank spokeswoman said Prologis is not releasing expected development costs or other details for the project now underway in Vernon. Brokers said the project is expected to be completed in fall 2019.

Prologis as of Sept. 30, 2018, owned or had investments in properties totaling 771 million square feet worldwide. The company said it leases modern distribution facilities to about 5,500 customers, primarily involved in business-to-business operations and retail/online fulfillment, with a focus on markets with high growth prospects and high barriers to entry.