The Inland Empire has experienced a significant uptick in multifamily development in the past decade. We are currently seeing a healthy shift toward more units being developed, which is driven by substantial regional economic growth in the years following the recession. Multifamily development has grown from less than 2,000 units annually in 2009 to more than 5,000 units developed this year. The Inland Empire has one of the highest imbalances of housing in comparison to significant population growth and increasing renters’ demand, according to CBRE research.
Eric Chen, CBRE
The Inland Empire market currently has 15 developments with a total of 3,445 units under construction. Significant developments are taking place in key cities like Ontario and Rancho Cucamonga. This is partially driven by the nearby Ontario International Airport, as well as Ontario’s position as a major logistics, warehousing and shipping hub. Market rents support the much-needed new supply. The City of Riverside currently has 595 units under construction. Riverside has the highest population in the Inland Empire, with consistent population growth over the past decade. An additional 391 units are under construction in Moreno Valley, which is also buoyed by its growth as a regional logistic center, with new industrial warehouse development adding many jobs.
We are seeing new players emerge in the market this cycle. These players include buyers, syndicators, and private capital investors from Los Angeles, Orange and San Diego counties. The Inland Empire is a landlord’s market with limited supply and huge tenant demand. Buyers continue to aggressively purchase multifamily assets in the $3 million to $30 million size range. With compressed cap rates throughout Southern California, there is increased interest in the Inland Empire from buyers who seek higher yields than those that can be found in the coastal markets.
Rental fundamentals remain strong, with vacancy hovering around 4.5 percent on average. Rental rates in the Inland Empire average $1,500 per month. Class B and C garden-style apartments that cater to workforce housing are performing strongly with the lowest vacancies and highest rental growth, CBRE research shows. Since it is a landlord’s market, there are generally not many concessions being offered. Properties that have heavy renovations done are reaching some of the highest rents. At those properties, landlords are giving a half month’s rent concession for new move-ins.
Despite the recent passage of the AB-1482 rent control measure in California, investors and owners across the board are still very optimistic about multifamily in the region. There are several value-add opportunities in many pockets of the Inland Empire, which have rents significantly below current market levels. Overall, many owners are looking to renovate and add value to their properties and bring their rents closer to the market.
— By Eric Chen, senior vice president, CBRE. This article originally appeared in the December 2019 issue of Western Real Estate Business magazine.