At any given moment during this market’s lengthy pre-recession heyday, it was not unusual to see under-construction figures at close to 20 million square feet. Indeed, graced by vast swaths of affordable developable land, a strong pro-business climate, booming residential construction, low development and occupancy costs, proximity to Southern California ports, and an excellent transportation network, the Inland Empire emerged as one of the nation’s most active industrial markets. The development of large state-of-the-art logistics facilities was its signature. With the recession crippling some of the market’s main supports, a slump in activity ensued. The market, however, now shows new signs of life, albeit in more modest proportions than was the historical rule. Demand for warehouse/distribution space, following setbacks due to the recession, got back on its feet in the fourth quarter of 2010. Net absorption, which leapt to 8.2 million square feet in 2011 (5.8 million square feet greater than the year’s portion of new supply), has been positive, essentially, since. The total for the first half of 2012, alongside 1.4 million square feet of new supply, all of which delivered during the second quarter, was 3.1 million square feet.
Since the mid-year mark, moreover, 3 million square feet of warehouse/ industrial space has arrived online in seven projects. Included were the July deliveries of two phases, with a combined total of 1.2 million square feet, at First Industrial Realty Trust’s First Park Nandina business park in Moreno Valley. Next in line with respect to size was the 606,300-square-foot Glen Helen Distribution Center in San Bernardino, which completed the same month. Per the date of this report, 3.9 million square feet of additional warehouse/distribution product was under way for completion by year-end. Prominent among these projects is developer Hillwood’s 950,000-square-foot distribution center for Amazon.com in San Bernardino. Completion is scheduled for October. In addition, 2.3 million square feet was under way for delivery in 2013 (that total is certain to rise: Reis expects 5.4 million square feet to complete in 2013). And fully 127.2 million square feet of warehouse/distribution product was in the planned-proposed pipeline per report date. “As is the case with many other major distribution hubs across the U.S.,” states Jones Lang LaSalle, “the Inland Empire is benefitting from growth in the E-Commerce sector as well as the food & beverage, third-party logistics and automotive industries.”
Vacancy, needless to say, has been declining. For the 314.6 million square feet of warehouse/distribution space tracked by Reis as of the second quarter, vacancy was 11.7% (representing 36.8 million square feet of vacant stock), down fully 60 basis points for the quarter, down 80 year-over-year, and 100 points below the second-quarter national rate for this property type. Rent growth, negative in 2010 and 2011, albeit less so last year, has turned positive. At $4.18 psf and $3.67 psf, asking and effective warehouse/distribution averages were up 1.0% and 1.4% for the quarter and were up 1.2% and 1.4% year-to-date, following losses of 2.1% and 1.1%, respectively, in 2011. The 2.4 million square feet of positive net absorption over the July–August period, roughly equal to same-term new supply, left the vacancy rate at 11.7%. Gains of 0.5% are indicated for both the mean asking and effective rents for that two-month span.
While Reis expects net absorption for the year to exceed new supply by about 800,000 square feet, the supply total for the second half should run ahead of same-term demand. Vacancy is projected to end the year at 11.9%. A relatively close balance of supply and demand, both with large volumes, is expected for 2013 and after. Rent growth at about 2.5% is anticipated for 2012 all told and for a period thereafter as well.