Michael Chavez, Lee & Associates
It’s no secret that with the abundance of developable land, affordable housing, and close proximity to the ports and major freeways, the Inland Empire has a tremendous advantage in relation to other Western markets. The Inland Empire industrial market has experienced a transactional volume of 120 deals for 100,000 square feet or more, as of this past November. There are also more than 30 buildings under construction, which total more than 15 million square feet.
Developers have been quick to respond to demand, with about 15.5 million square feet of construction completed in the Inland Empire to date, thanks to Fortune 500 retailers and third-party logistics (3PL) firms nabbing large space within the market due to an improving economy. With another 15 million square feet currently under construction, the Inland Empire’s industrial base will foreseeably increase by 10 percent by the end of 2016. Assuming the current state of economic growth continues, the Inland Empire industrial market is expected to finish 2014 strong, with positive market activity poised to continue well into 2015 and 2016.
The industrial demand in the Inland Empire is closely associated to international trade and continues to attract large distributors, warehouses, e-commerce companies and logistics firms that are on a mission to consolidate their operations into large, modern facilities. Amazon has continued its growing presence in the Inland Empire, amassing a footprint of more than 4 million square feet. The online retailer also recently completed three major leases, establishing the company’s sixth fulfillment center in California and the fifth in the Inland Empire.
The largest development to recently commence construction was Walmart’s 1.4-million-square-foot, build-to-suit project in Chino. Majestic Realty should deliver this project by the fourth quarter of 2015. These recent transactions indicate that land in the Inland Empire tends to be less expensive and more readily available than the market’s surrounding areas.
After a historic second quarter, the Inland Empire witnessed close to 10 million square feet of net absorption in 2014. In addition to our year-to-date numbers, pre-leased activity and build-to-suits imply continued major positive absorption throughout 2015. This volume has led to a healthy vacancy rate of 4.15 percent, well below the 7 percent national rate. This demonstrates a healthy industrial market compared to years past, with more than 36 million square feet of total activity in the Inland Empire industrial market. Landlords have steadily benefited from the large volume of activity in 2014, allowing for fewer concession packages and noticeable rate increases.
By Michael Chavez, Principal, Lee & Associates in Ontario. This article originally appeared in the December 2014 issue of Western Real Estate Business magazine.