Southern California’s Inland Empire region has enjoyed a sustained period of growth in the retail real estate sector. Good spaces in quality centers are leasing quickly. Although new developments have slowed, there is still about 1.2 million square feet of new space under construction. These are all top-tier projects that will very much enhance the communities where they are being built. Projects include a Sprouts-anchored center in Eastvale, a Grocery Outlet/Planet Fitness center in Beaumont, an Aldi-anchored center in Hesperia, a Stater Bros. center in Calimesa, AMC Theaters at Montclair Place in Montclair and a Cardenas grocery market center in Montclair.
Brad Umansky, Progressive Real Estate Partners
Conversely, apart from the Inland Empire, there are likely few other areas that were as impacted by the recent store closure announcements from Sears and Forever 21. Closings will occur in Montclair, San Bernardino, Victorville, Moreno Valley, Palm Desert, Riverside, Temecula and Rancho Mirage. All told, more than 900,000 square feet of big box space just hit the market. The Inland Center Mall in San Bernardino, which has been a very healthy property over the past few years, is dealing with both a Sears and Forever 21 closure. Macy’s and JC Penney (opened in 2016) still remain at the center. Everyone’s hope is that the vacated spaces can be redeveloped to enhance Inland Center Mall and the surrounding area. While the re-tenanting and redevelopment of these big boxes is a challenge, it’s also an opportunity to reset the retail mix to better reflect today’s marketplace.
There is currently 13.2 million square feet of available retail space in the Inland Empire, resulting in a 6.8 percent vacancy rate. More than 21 percent of the vacancy is in just 48 spaces. We are observing many challenging spaces, but it may not be the physical location or configuration. Frequently it is issues relating to zoning, CC&Rs, exclusives or inexperienced ownership. We are also observing numerous single-tenant properties that were purchased during the building boom of the 2000s by passive investors who were not prepared when their tenant vacates.
Net absorption was 1.7 million square feet in the trailing 12 months, which is not as strong as the previous year but is still substantially above the average of the past 10 years. Investment sales volume also remains quite healthy with $1.4 billion of retail trading hands in the past 12 months. We are seeing multi-tenant cap rates rising a little, while single-tenant cap rates remain at their record lows.
Overall, I’d characterize the current Inland Empire retail market as steady. The continued population growth of the region is sure to drive positive trends, although development will moderate as much of the new housing is infill, or in areas that do not need more retail, but instead more residents, to support the existing retail.
— By Brad Umansky, president, Progressive Real Estate Partners. This article first appeared in the December 2019 issue of Western Real Estate Business magazine.