Inland Empire Sees Healthy Industrial Construction Levels

The Inland Empire’s commercial real estate market is seeing large big box industrial buildings of 300,000 square feet or more being built on a speculative basis — and they are being absorbed by a healthy market.

There is nearly 10.4 million square feet of industrial space currently under construction in this region. Once completed, this new space will increase the total inventory of industrial properties by 2 percent, or from 509 million square feet to 520 million square feet. At the same time, unemployment is above 7 percent for the nation and almost 9 percent in California, with many questioning the strength of the economy.
If it seems like a big gamble for developers of these big projects to be building in such uncertain times, think again. This money will likely fare better than it would in the bank. These large projects are being leased and sold.
Since 1982 — when only 3.5 million square feet was constructed for the year — the Inland Empire has seen average construction levels of about 13 million square feet annually. Some years it seemed like construction could not keep up with demand. This was the case in 1989, when 34.3 million square feet was delivered, and again, in 2006, when 33.7 million square feet arrived.
Then, during the Great Recession, there were those who said the market would never be the same. They believed it would take many years to recover. This sentiment seemed to be confirmed when newly constructed industrial properties amounted to a paltry 1.7 million square feet in 2010. However, as 2014 approaches, the market may very well surpass its 31-year average of 13 million square feet. Additionally, vacancy levels are low, at about 6.5 percent, indicating a healthy market.
Large big box industrial properties are in demand. The average size under construction is nearly 400,000 square feet. This is up dramatically from the total existing inventory average size of only 40,000 square feet. Many of the companies that will occupy these new buildings are also expanding due to an uptick in business and in anticipation of an improving economy. For example, Amazon recently opened a new 1-million-square-foot distribution warehouse in San Bernardino, and will soon expand further into Moreno Valley with a 1.5-million-square-foot facility that is scheduled for next year.
Other warehouses will be occupied by businesses relocating from Los Angeles and Orange counties. These businesses have been lured to the Inland Empire not only by the well-known economies of scale of big box warehousing, but also by the wide, truck-friendly streets, a readily available workforce, and lower warehouse rental rates and purchase prices. And let’s face it, who doesn’t like having a new building — for less than or about the same cost as an old building?
The Inland Empire industrial market is considered by many to be the largest in the United States. With new construction at a healthy level, there are many who expect it to remain the largest for many years to come.
— Tony Guglielmo, president, and Steven Roppel, senior vice president, Allied Commercial Real Estate in Ontario, Calif.
Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Pavlov Media
‣ Walker & Dunlop

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