The Changing Face of the Inland Empire Office Market
An hour east of downtown Los Angeles, the Inland Empire office market contains about 25 million square feet of office product in San Bernardino and Riverside counties. This market has undergone tremendous growth over 10 years, and a more diverse stable of occupiers has moved in since the area was decimated by the housing crisis of 2007.
At times overlooked, the Inland Empire’s office market is more than just the low-cost alternative to Southern California’s LA and Orange counties. With a sector vacancy rate of just 9 percent (lower than neighboring submarkets) the Inland Empire’s economic engine is supporting one of the fastest job growth areas in the country over the past decade, boasting an unemployment rate of only 3.6 percent.
The fourth quarter of 2019 witnessed the first speculative general office building development in more than eight years. Average asking rates have also increased to $2.05 per square foot, the highest level since 2009. With sustained positive absorption and continued rising rental rates, this area has shifted to become a landlord market over the past couple years and, with this, concessions will continue to evaporate.
Education and health services, government, and professional and business services have all seen recent spikes in job growth and are experiencing a rapidly growing appetite for additional square footage. Recent lease signings include the San Bernardino County Fire District leasing 70,617 square feet; Inland Empire United Way nabbing 30,000 square feet; San Bernardino County Human Services agreeing to 20,800 square feet; Riverside Medical Clinic committing to 20,929 square feet; and educational provider Think Together taking 17,724 square feet.
Strong overall fundamentals in the Inland Empire include a growing employment base with record low unemployment, substantially more affordable housing options than neighboring regions, and local control and growth of Ontario International Airport. These factors all point toward continued office growth in this region.
Ontario International was the fastest-growing U.S. airport for the second consecutive year, according to industry research. Even more exciting for local office demand is the growth in its employment base, specifically with millennials. This region is projected to grow by two million residents in the next 25 years. Millennial growth is also on the rise, bringing with it a highly educated labor pool that will spark growth in new industries for this region. Namely, technology.
Time magazine recently named Riverside as the top suburb in the country for millennial growth, while Forbes named it the No. 1 region for millennial growth since 2000. This coveted 20-to 34-year-old labor pool is forcing companies to take a hard look at opening offices outside their traditional growth areas. As the nation’s largest living generation, this group will have an immense impact on both the economy and the development of the office market. This changing labor pool is giving the region, once known primarily for manufacturing and logistics, a new innovative face. And with this, investors will continue to look at the Inland Empire region for growth in their office portfolios.
— By John Bibeau, vice president with CBRE. This article was originally written for the May 2020 issue of Western Real Estate Business magazine.