Despite a Slowdown, San Bernardino’s Industrial Outlook Remains Strong

by Jeff Shaw

By Rick John, Executive Vice President, Ontario Branch Manager, DAUM Commercial

The San Bernardino industrial market is experiencing strong market fundamentals as it’s home to 18 percent of the Inland Empire East’s nearly 245 million square feet of industrial space. The city also commands one of the highest prices per square foot across the market, exceeding $300. 

Although vacancy rates for the Inland Empire East increased for the first time since the pandemic – jumping 14 basis points and ending at 1.1 percent for the third quarter – overall vacancy in San Bernardino remains historically low. In fact, it’s among the lowest in the region at 0.24 percent.

Rick John, Executive Vice President, Ontario Branch Manager, DAUM Commercial

This incremental increase in vacancies was primarily seen among smaller buildings, while larger buildings of 500,000 square feet or more continue to be in short supply as vacancy remains near zero.

Consistent low vacancy and competition for space are encouraging large companies to pre-lease new developments in the construction pipeline. This has helped bring gross leasing activity to near pre-pandemic levels. In September, Shein signed the largest lease within the Riverside-San Bernardino metro for the quarter with plans to open a 1.8-million-square-foot distribution center that’s currently under development in Cherry Valley.

Due to its favorable economy, large industrial tenants occupy a vast amount of space in San Bernardino County, with developers like Prologis and Duke Realty taking advantage of vacant land to build new complexes.

In addition to high interest rates and rising construction costs, developers are facing higher settlement costs and limited real estate options in other counties. This has driven more interest to San Bernardino. Moratoriums and local measures throughout the Inland Empire have also caused developers and investors to seek shelter from these constraints by targeting new warehouse production in San Bernardino. 

As investment dollars from these large companies pour into competitive industrial market hubs like San Bernardino, owner-users are struggling to secure Class A space. In the past year, there were few user sales on spec development within the greater Inland Empire market. Smaller-scale users must be willing to be creative, proactive and move quickly to acquire within the region.

In spite of the slight uptick in vacancies, rents will likely remain strong due to steady demand for space. Average asking rents in San Bernardino increased by $0.06 per square foot to between $1.15 and $1.25 per square foot, up 5.4 percent from the previous quarter.

Nevertheless, San Bernardino consistently proves to be one of the most sought-after industrial markets in the country. With direct access to transportation routes and proximity to the highly active Southern California ports, growth throughout the region continues to be driven by strong ecommerce and a collaborative local economy.

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