Despite challenges caused by the COVID-19 pandemic, the Inland Empire’s retail market is making a strong comeback. According to a third quarter market report from CBRE, leasing activity in the Inland Empire has improved, with the region showing strong year-to-date net absorption.
“The Inland Empire’s vacancy rate remained the same quarter-over-quarter and decreased 80 basis points (bps) year-over-year. As major retailers closed their stores in the market, landlords opted to work with their existing tenants on rents rather than having a vacant building. Moreover, business owners are confident about the economic outlook,” CBRE stated in the report.
The Inland Empire finished the third quarter with an eight percent vacancy rate overall, according to the report. Additionally, approximately 70,613 square feet of retail space was absorbed in the third quarter, totaling 40,554 square feet year-to-date due to previous quarters of negative net absorption.
According to the report, leasing activity was up across all submarkets. Of the top five deals that took place in the Inland Empire during the third quarter, four were from discount retailers, including Crazy Boss Discount Store, which signed a 103,157 square-foot lease at the Vineyard Valley Center in Fontana. The lease marks the company’s eighth location in the region. Additionally, Hobby Lobby, Burlington Coat Factory and Planet Fitness all pre-leased space totaling 97,848 square feet at The Ranch at Model Colony. The retail center, which is expected to begin construction in Ontario in the second quarter of 2022, is already 73 percent leased.
While leasing activity remained high, rental rates were largely unchanged. The report showed that rental rates for retail assets in the Inland Empire increased approximately one percent year-over-year, but remained unchanged quarter-over-quarter. Currently, rental rates in the region average $2.07 per square foot per month. However, prices are expected to shift in the coming months, according to the report.
“Despite economic optimism and increased leasing activity in Q3 2021, slow consumer activity and store closures over the past years hindered rent growth overall. CBRE projects rents to grow 2.2 percent by 2022,” the report stated.
Optimism in retail comes as retail sales continue to grow. According to the report, total retail sales across the U.S. grew 5.7 percent year-over-year to $52.6 billion in revenue. Retail sales in the Inland Empire account for approximately 2.2 percent of the total U.S. revenue. Further, CBRE predicts an increase in population, income, and overall employment growth across the U.S. will continue to grow demand for retail throughout the Inland Empire.
Heightened demand has also led to the development of additional retail centers. Currently, four projects totaling 926,428 square feet are under construction in the Inland Empire. A majority of the square footage comes from the Oak Valley Town Center in Calimesa, which is expected to reach 581,148 square feet upon completion in the third quarter of 2022.
Overall, demand for retail space in the Inland Empire is anticipated to continue as activity from both consumers and tenants continues to pick up.
“This year’s summer began with a surge but eased back as the Delta variant forced consumers to rethink their holidays and restaurant visits. The Inland Empire retail market was hit hard due to the pandemic, but the market’s recovery outpaced expectations due to increased leasing activity and strong year-to-date net absorption,” the report states.
CBRE declined to comment at this time.
