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.
David Burback, Kidder Mathews
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 user market is larger buildings between 500,000 and 1.5 million square feet where interest far outpaces the supply by a 3:1 margin. Demand is particularly acute among large retail distributors (Walmart, Target, Home Depot, etc.) as well as third-party logistics providers (3PL) and transportation providers (J.B. Hunt, Kuehne & Nagel, CEVA, etc.). These buildings are often preleased while under construction and, in some cases, during the planning stages.
Of course, Amazon, the dominant player in the ecommerce arena that launched its first building in the Inland Empire five years ago, currently occupies 15 buildings exceeding a total of 12 million square feet in the region, with more to come. Amazon is scheduled to open a 2.6-million-square-foot, four-story fulfillment center in the East Inland Empire in April.
As large infill sites become harder to come by, developers are forced to push further east, leading them to explore opportunities in the High Desert and south Corona corridor. The competition for large, quality sites remains fierce. This was evidenced in the disposition of a 1.4-million-square-foot distribution center in Rancho Cucamonga late last year. The former owner, Big Lots, had recently relocated its operations to the High Desert. After a tedious bidding process that received more than 20 bids, the winning buyer acquired the property at a record price of $48 per square foot on the land value. They are currently planning to replace the existing building with a new state-of-the-art distribution center.
Despite recent tariffs, the industrial market in the Inland Empire is poised to continue its brisk pace on all fronts. More recent concerns center around labor availability due to the increasing number of employees required in both distribution and fulfillment centers. Fortunately, the region can provide an abundant supply of affordable housing both now and in the foreseeable future. Finally, the disruption in the supply chain at every level caused by the COVID-19 virus has and may continue to prove problematic for the industry in the short-term.
— This article originally appeared in the May issue of Western Real Estate Business magazine.