Inland Empire Office Demand Stagnates, Medical Office Leasing Remains Strong

By Drew Sanden, Senior Managing Director, Newmark

The Inland Empire office market boasted very strong fundamentals heading into 2020. The vacancy rate across the 28.3 million-square-foot base was 9.5 percent, lease rates were reaching peak levels and developers were again exploring larger spec developments. Like many markets across the U.S., COVID-19 has greatly impacted the Inland Empire’s office market. Office usage, demand, absorption and leasing transactions are down year-over-year. Large back-office transaction volume has been the most impacted as companies struggle to manage the social distancing guidelines.

Drew Sanden, Senior Managing Director, Newmark

With that said, the suburban nature of the Inland Empire has helped insulate the office market. The combination of affordable housing (relative to Southern California’s coastal communities) and remote work opportunities have strengthened the overall workforce. This pandemic has acted as an accelerator for the hub-and-spoke trend where companies have larger regional offices in CBDs like Los Angeles and Irvine, while maintaining smaller satellite offices in suburban markets. We’ve seen an influx of small satellite offices in Corona, Ontario, Rancho Cucamonga and Riverside. 

Demand for medical office building (MOB) leasing and sales has remained strong. This trend was highlighted with the pre-sale of two medical office buildings at the Rincon in Chino Hills, which was delivered in the second quarter of 2020. The owner-user sales set market highs based upon price per square foot at $385 per square foot. Additional medical condominium projects will be breaking ground soon in surrounding cities.  

Vacancy rates in the Inland Empire office properties have climbed to 10.3 percent, though lease rates have held close to asking for Class A product types, which are currently asking an average of $2.32 per square foot. The most notable concession currently being offered by landlords is flexibility. On transactions with minimal capital outlay, landlords will entertain lease terms as short as 24 months. Leasing demand has remained stagnate for the past several quarters, though conversion rates remain high as in-market prospects appear to be more qualified and focused. Overall, there is optimism surrounding the Inland Empire office market heading into 2021 because of the region’s resilient fundamentals and robust workforce. 

Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Pavlov Media
‣ Walker & Dunlop

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