By Jack Stubbs
The Inland Empire saw a busy end to 2022 in terms of industrial market activity. According to Colliers’ Q4 2022 Inland Empire Industrial Research Report, historically tight market conditions persist with low vacancy rates and a lack of space continuing to be a challenge in the region.
The Inland Empire comprises 600 million square feet and represents 35 percent of the total industrial space in greater Los Angeles for buildings 10,000 square feet and greater. The region continues to attract a variety of potential companies, ranging from large distributors, warehousers, e-commerce companies to logistics firms seeking to consolidate their operations into large, state-of-the-art facilities.
Key findings highlighted in the report include the following: net absorption closed out the fourth quarter at 6.9 million square feet; construction completions reached a three-year high of 7.8 million square feet; average asking rents rose 2.9 percent to $1.61 triple-net (marking a 50 percent increase year-over-year); and net absorption failed to surpass new supply for the fourth straight quarter.
In terms of the recent vacancy rates noted in the report, vacancy in the Inland Empire remains historically low at 0.9 percent (an increase from the figures of 0.5 percent in fourth quarter 2021 and 0.7 percent in third quarter 2022) and will likely see a similar trend in the coming quarters. Additionally, around 26.5 million square feet is expected to be delivered in the next six months.
Overall, vacancy rates in West Inland Empire increased by 30 basis points to 0.8 percent, while the East saw the same figure drop 10 basis points to 0.9 percent, notes the report.
At the end of fourth quarter 2022, there were only three vacant blocks of space over 200,000 square feet – the 100,000 to 250,000 square foot size range is currently the softest spot in the market, sitting at 2.2 percent vacancy. In spite of the significant amount of delivery anticipated over the next few months, the Inland Empire’s vacancy rate is expected to remain around 1 percent.
In terms of absorption and leasing activity, it’s fair to say that unpredictable times lie ahead for the Inland Empire’s industrial market. According to the report, fourth quarter 2022 saw a net absorption figure of 6.85 million square feet, which contrasts with the figures of 2.9 million square feet posted in third quarter 2022, and that of 6.9 million square feet posted in fourth quarter 2021.
The Inland Empire’s industrial market witnessed an interesting trajectory with regards to leasing activity: in total, 5.2 million square feet were leased, roughly 46 percent of which came from 12 new leases totaling over 100,000 square feet.
Some of the noteworthy lease transactions in the fourth quarter included Skechers’ lease of 1 million square feet at 2600 John St. in Banning from Logistics Property Co., and John Hancock’s 534,404 square foot lease to Motivational Fulfillment at 15835 San Antonio Ave. in Chino. Another notable lease included Logistics Plus’ lease of 374,000 square feet at 300 Palmyrita Ave. in Riverside from Washington Capital Management.
Looking ahead at the Inland Empire’s prospects for its industrial market, construction activity throughout the region is robust, with 37.8 million square feet currently underway and around 26.5 million square feet expected to deliver in the next two quarters. As of fourth quarter 2022, there were 73 buildings – all over 100,000 square feet – under development, which comprise 15.6 million square feet across 16 pre-leased projects.
The report notes how, as space continues to become scarcer in the Inland Empire – in the West in particular – it is anticipated that the Eastern boundary of the Inland Empire will expand outward. The Inland Empire has seen 107 million square feet of industrial space built over the last four years and is now a 600 million square foot market.
Undoubtedly, the Inland Empire’s industrial sector has experienced a massive boom, due in part to the COVID-19 pandemic, which has precipitated an increased interest in industrial properties due to a multitude of factors, such as heightened consumer demand for ecommerce.
This has led to a number of large acquisitions in the region. Some of the noteworthy sales include Sares Regis Group’s sale of a nearly 761,000 square foot property located at 3100 Milliken Ave. in Jurupa Valley to NFI Industries for $220 million, or just under $290 per square foot. Other sales included GLP Capital Partners’ acquisition of a 355,031 square foot property located at 251 Rider St. Perris for $90 million, or around $253 per square foot, from Link Logistics.
“With vacancy still at historically low levels and record-high rent growth, investors are highly competitive in greater Los Angeles as the big players look to increase their industrial portfolio in Southern California.” the report states.