Q2 2012 San Bernardino/Riverside, California Commercial Real Estate Economy

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Q2 2012 San Bernardino/Riverside, California Commercial Real Estate Economy

Like Las Vegas and Phoenix, with their soaring job and population growth profiles and their relentless boom-style residential development, Southern California’s two-county San Bernardino/Riverside metro area (a.k.a. the Inland Empire) underwent a catastrophic downturn. While setbacks had been suffered here before, they tended to be mild and quickly reversed. But the combination of negative factors, led by a disastrous housing implosion, enormous job losses, and a sharp decline in population in-migration, has proven resistant to the quick turnabouts enjoyed after previous down cycles. The Inland Empire mold, it seems, has been broken.

Still, if tardy and modest in scale alongside the preceding decline, signs of recovery, in both the local economy and the local housing sector, finally have appeared. According to data provided by the U.S. Bureau of Labor Statistics (BLS), average non-farm employment as of July was up 25,100 jobs (2.3%) from 12 months prior (and was up 2.3% as well over 24 months). Particularly encouraging has been the recent job growth reported for the badly mauled Construction sector. Employment therein as of July was up 2,000 jobs (3.3%) from 12 months prior and was up 2,600 jobs (4.3%) over 24 months. (That said, employment in this industry segment per the latest July amounted to only 47.9% of the total calculated for July 2006.)

The improvement, moreover, embraces a wide base. Employment in the Trade, Transportation, and Utilities sector was up 4,500 jobs (1.7%) over the latest recorded 12-month span and was up 8,800 jobs (3.2%) since July 2010. With its vast stocks of affordable developable land and proximity to Southern California ports (and with the high occupancy and development costs of coastal industrial real estate), the Inland Empire has emerged as a major state-of-the-art logistics market. Improvement is indicated as well for the Professional and Business Services sector, for which BLS data indicate large recent employment gains, including the 17,400-job (14.2%) increase over the latest July-to-July period. When all is said and done, however, the ground to be regained remains vast. Metropolitan Statistical Area (MSA) non-farm employment as of July remained down fully 133,900 jobs (10.5%) from five years earlier. And the persistent weakness of the Government sector seen throughout Southern California remains a salient liability. Employment by Government in the Inland Empire suffered an 11,800-job (5.3%) loss over the latest 24 months. Indeed, the region made national headlines with the recent bankruptcy of the City of San Bernardino. The city’s “financial woes are directly correlated to a torrent of foreclosures in Inland Southern California,” the Press-Enterprise reported in July, citing RealtyTrac. “Property taxes plunged in San Bernardino because of an avalanche of foreclosure activity during the recent housing bust.” “Sagging retail sales” are another cause of the city’s difficulties, this source noted in a separate July report.

Signs of life in the form of rising sales volumes and prices have returned to housing markets throughout Southern California. Problems, however, remain. The Inland Empire has suffered from one of the nation’s highest foreclosure rates. According to an August report by HousingWire.com citing recent data, more than 60% of all homes in the two-county metro area suffered from negative equity—more than 2.5 times the national rate. According to Zillow, as cited by this source, “home values in the area dropped more than 55% from the peak of the housing market.” The National Association of Realtors reports the second-quarter MSA median single-family resale price at $183,000, up 6.7% year-over-year, up 5.0% for the quarter.