Market Reports

Fourth-Street-Distribution-Center-Rancho-Cucamonga-CA

Inland Empire Continues to Be an Industrial Market Leader

by Jeff Shaw May 26, 2020

By David Burback, Senior Vice President and Managing Director, Kidder Mathews A 1.4-million-square-foot distribution center in Rancho Cucamonga that was formerly owned by Big Lots, recently sold for $48 per square foot on the land value. The new owner plans to replace the existing building with a new state-of-the-art distribution center. By every metric, the Inland Empire continues to be the national leader in the industrial real estate sector. The area enjoys the advantage of being just 40 minutes from the two largest and most active ports in the country. Driven by the strategic expansion of supply chains and the rapid emergence of ecommerce, the Inland Empire remains the most robust industrial market in the country. Annual new construction is approaching 25 million square feet, and the absorption of space is in equal proportion. Rents have increased by 65 percent, sales prices have increased by 80 percent and land prices have more than doubled over the past five years, according to our research. There seems to be some moderation from these double-digit, year-over-year increases as we move into 2020. Yet, the market remains active on all fronts – user, developer and investor alike. The most active sector of the industrial …

May 26, 2020

California Market Reports Office Western Western Market Reports

The Changing Face of the Inland Empire Office Market

by Jeff Shaw May 11, 2020

An hour east of downtown Los Angeles, the Inland Empire office market contains about 25 million square feet of office product in San Bernardino and Riverside counties. This market has undergone tremendous growth over 10 years, and a more diverse stable of occupiers has moved in since the area was decimated by the housing crisis of 2007. At times overlooked, the Inland Empire’s office market is more than just the low-cost alternative to Southern California’s LA and Orange counties. With a sector vacancy rate of just 9 percent (lower than neighboring submarkets) the Inland Empire’s economic engine is supporting one of the fastest job growth areas in the country over the past decade, boasting an unemployment rate of only 3.6 percent. The fourth quarter of 2019 witnessed the first speculative general office building development in more than eight years. Average asking rates have also increased to $2.05 per square foot, the highest level since 2009. With sustained positive absorption and continued rising rental rates, this area has shifted to become a landlord market over the past couple years and, with this, concessions will continue to evaporate. Education and health services, government, and professional and business services have all seen recent …

May 11, 2020

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The Creative Trend Continues in Orange County

by Taylor Williams February 1, 2020

Orange County continues to be a diverse marketplace for commercial real estate as we reflect back on 2019. Thanks to a growing and varied workforce made up of highly skilled and educated workers — with tech and life sciences at the forefront of transactions — the county’s economy remains strong. Looking ahead, Orange County’s local market is very resilient, despite the fact that economy leasing volume has slowed as tenants are focusing on space-efficient decisions. This market continues to remain stable thanks to a number of existing buildings that have been or are currently under renovation to meet the demand of companies that are branching out from traditional office space. A few of these repositioned properties include the Launch, the Met, 2722 Michelson Drive and the Press, which is currently under construction in Costa Mesa. Overall vacancy in the county has been 13.8 percent, while overall asking rental rates are $2.95 per square foot (full-service gross) with Class A rates sitting at $3.23 per square foot. Some submarkets are home to the majority of this activity, including the Airport area and South Orange County due to ideal geographic locations for businesses and new office development. Of course, fundamentals vary by …

February 1, 2020

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Orange County’s Multifamily Market Continues to Grow

by Taylor Williams January 31, 2020

Orange County’s multifamily housing market remained exceptionally strong throughout 2019. The average asking rent closed the quarter at $2,055 per unit, up 3.3 percent from the fourth quarter of 2018. This was the highest asking rent on record, up 34.5 percent from the prior peak reached in the third quarter of 2008. The Central submarket saw the largest year-over-year rental rate increase, with the asking rent there rising 3.8 percent to $1,920 per unit. This quarter, the Irvine submarket also saw its average asking rent adjust a bit, down 0.7 percent from the prior quarter to $2,446 per unit as existing inventory competed with new construction added to the market. However, the average rent in Irvine is up 3.2 percent from last year. Completed construction has pushed vacancy up. The total vacancy rate in Orange County this quarter registered 4.8 percent, up 30 basis points from the prior quarter, steady from the fourth quarter of 2018. Four significant projects totaling 2,567 units were completed this quarter. This includes Promenade at Irvine Spectrum with 1,781 units; SkyLoft, a 388-unit development in Irvine; the Charlie Orange County, a 228-unit complex in Santa Ana; and the Murphy, a 170-unit complex in Irvine. Annual …

January 31, 2020

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Orange County’s Industrial Market Stays Healthy Going Into 2020

by Taylor Williams January 25, 2020

Demand for Orange County industrial space remained healthy in 2019 as vacancy rates ended another year in record-low territory at 2.9 percent, fueled by a strong second-half net absorption. The movement in the second half of 2019 was largely a result of the Fed’s decision to keep interest rates low, which provided assurance for buyers that had been on the fence. The attractive interest rates have led to steady price increases, however, adaptation has been slow. The average time on the market has increased by roughly 30 to 60 days from 2018. Many buyers also struggled with post-close deferred maintenance. With the typical industrial building in Orange County being construction in 1985, buyers are often challenged with renovation costs adding to their bottom lines. Meanwhile, landlords in 2019 became more conservative in rent demands as average gains in asking full-service rents fell to 4.2 percent countywide, compared to 4.9 percent in 2018. Leasing activity remained steady with an average asking rate across Orange County of about $1 per square foot, triple net. A handful of notable new construction projects advanced in 2019. In the fourth quarter, 10 buildings totaling nearly 1.2 million square feet were completed in North Orange County, …

January 25, 2020

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Orange County’s Retail Transaction Volume, Consistency Will Continue in 2020

by Taylor Williams January 24, 2020

Retail transaction volume was strong in January as the shorter 2019 holiday season created a tight window for year-end closings, residual transactions pushed into the New Year and gave 2020 an early jump on what should be another great year. Total transactions in 2020 should continue to build from the big start. The massive transaction volume from the second half of 2019 — more specifically, a glut of fourth-quarter sellers — has produced a wave of investors needing to complete 1031 exchange purchases in the second and third quarters of 2020. By comparison, 2019 featured a slower than typical start due to a combination of elevated interest rates and residual investor hangover from the equity markets debacle of the fourth quarter of 2018. Our sense is that 2020 will benefit from enormous velocity, driven by private investor demand and seller willingness to meet market expectations in favor of quicker transactions as fears of the late cycle, election turmoil and international unrest grow. Further evidence of seller’s alignment with market expectations, trailing available data has shown the asking price to sale ratio narrowed from nearly 12 percent in first-quarter 2019 to 3 percent in fourth-quarter 2019. This brought the bid/ask more …

January 24, 2020

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Inland Empire Retail Market Remains Steady Despite Big Box Closures

by Taylor Williams December 6, 2019

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. 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 …

December 6, 2019

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Los Angeles, Orange County Look to Inland Empire for Industrial Needs

by Taylor Williams November 30, 2019

The Inland Empire industrial market signaled that it may be transitioning toward slower growth in the second half of the year. Leasing volume declined sharply to nearly 7.8 million square feet, which is the lowest volume seen in a single quarter since 2011. New construction deliveries pushed the average rent to the highest level on record — $0.86 per square foot. Of the 13.7 million square feet completed year to date, 32 percent remained available at the end of the quarter. Despite the deliveries, vacancy remained steady at 4.5 percent since the third quarter of 2018, proving demand for industrial space in the Inland Empire is still present. The U.S. economy may be facing a drop off after climbing steadily for the past 10 years. The trade war and tariffs are undoubtedly influencing the ports’ cargo volume, which supports industrial demand in the Inland Empire. Retailers usually prepare for increased sales during the holiday season by increasing imports in July and August. However, imports through August 2019 were down 2.4 percent from 2018. Imports had increased 3.1 percent last year at this time. The U.S. is dependent on imported goods, though, so cargo volume is unlikely to take a significant …

November 30, 2019

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The Inland Empire Is a Hotbed of Multifamily Development

by Taylor Williams November 29, 2019

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. 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 …

November 29, 2019

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Landlords Emphasize Top-Quality Amenities, Services in OC’s Office Market

by Taylor Williams November 23, 2019

Employers throughout Orange County continue to seek ways to attract and retain the best and brightest talent as unemployment dropped to 2.4 percent in the second quarter, below both the California and U.S. rates. That, in turn, has resulted in landlords reinvesting in their properties, providing creative and flexible work spaces, and offering a variety of onsite amenities and service that help companies fulfill that goal. Landlords continue to seek out creative competitive advantages by improving the actual employee experience within the workplace. This often results in amenities like gyms, fitness classes, outdoor work areas, restaurants and collaborative open spaces. Add to that complimentary concierge and personal services, dog-friendly campuses, onsite hosted events and entertainment opportunities and it’s evident to see that property owners are stepping up their tenant services game, thereby enhancing employee innovation and productivity in the workplace. With all that in mind, three new office projects completed construction in the second quarter. FLIGHT at Tustin Legacy added 457,217 square feet of unique, creative office space with 26 percent already pre-leased. The major warehouse-to-office conversion project at 2722 Michelson was delivered fully leased to Anduril, an aerospace defense firm, which subsequently subleased 47,733 square feet to advertising technology …

November 23, 2019

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