IE Business Daily Business news for the Inland Empire.
E-commerce is driving the market to heights its never seen before, making it one of the fastest growing industrial markets in the country, according to one commercial real estate firm. The question now is how long the boom market will last.
It’s difficult to find anything negative to say about the Inland Empire industrial market.
Vacancy is anywhere from three to five percent, depending on whose data you consult. Absorption is on the rise, lease rates are climbing steadily and the average size of an industrial building in Riverside and San Bernardino counties during the second quarter was 200,000 to 400,000 square feet, according to Colliers International.
Gross absorption – the total amount of industrial space sold and leased – during the first six months of 2016 was nearly 28 million square feet. Net absorption – the amount of space occupied at the end of the quarter minus the amount occupied at the beginning of the quarter – reached more than 6.5 million square feet by the end of June.
That was the highest rate of absorption recorded in the Inland Empire since the fourth quarter of 2010, and the 27th consecutive quarter the region’s industrial market has posted positive net absorption, according to Colliers.
What’s driving all of this growth, which is as strong as any ever recorded anywhere in any submarket? The short answer is E-commerce fulfillment centers, the logistics operations that cover 850,000 square feet and more and are equipped with the most advanced delivery systems in the world, are responsible for much of it
E-commerce is having an impact all over: in the 12 largest inland-port markets in the United States, development is growing at approximately twice the usual rate, mostly because of the building of e-commerce facilities, according to CBRE Group Inc.
CBRE also found that the growth of e-commerce warehouse-distribution centers has fueled an unprecedented rate of development in the Inland Empire, making it one of the fastest-growing industrial market in the United States.
National brand retailers, including Home Depot, Amazon and Walmart have all opened or are planning to open fulfillment centers in the Inland Empire, and that trend is not likely to stop anytime soon, said Len Santoro, senior vice president and an industrial specialist with CBRE Group Inc. Ontario.
“The demand for e-commerce space is outpacing retail sales at the moment,” said Santoro, who has been negotiating industrial deals in the Inland Empire for about 40 years. “That’s extremely fast growth. I suppose it will last as long as there’s e-commerce, or until we start manufacturing here again.
“But this is the strongest I’ve seen the market for a sustained period of time.”
The 15 largest industrial buildings in the Inland Empire range from the California Steel Industries building in Fontana, which covers more than 1.9 million square feet, to the Mag Instrument Inc. building in Ontario, which covers one million square feet, according to Kidder Matthews, a global commercial real estate company.
Amazon, the online retail giant, occupies nearly 3.4 million square feet of industrial space in the Inland Empire at three facilities. Those include 1.2 million-square foot fulfillment center in Moreno Valley that opened three years ago and a one million square-foot fulfillment facility in Eastvale that opened in June.
A study conducted Colliers shows that demand for industrial space in the Inland Empire market remains strong, with product getting leased as fast as it’s built. Of course, much of that demand is because of e-commerce, which is designed to deliver online orders the day they’re placed.
The report found that, at the end of the second quarter, there were no industrial buildings of one million square feet or larger available in either county. The study also found that there is only one building of that size under construction at the moment, and just two that are in the planning stages, both of which are on the west side.
“Those buildings are coming on to the market while demand for one million square foot buildings continues to grow,” said Steven Bellitti, Colliers’ senior executive vice president, in a summary of Colliers’ second quarter report. “They are being leased and sold as fast as developers can deliver them to the market.
“That’s why construction numbers are up, vacancies are down and prices are beginning to inevitably rise, as they always do when there’s a demand-supply imbalance.”
E-commerce is becoming so prevalent in the Inland Empire that it’s pumping up demand for a second tier of industrial buildings: structures under 50,000 square feet that are built near the larger facilities. Those buildings act as satellite operations, because the fulfillment centers – even those that cover more that one million square feet – can’t always keep up with demand.
“We’re seeing that everywhere, but especially on the west side and around the Amazon facilities,” Santoro said. “People today, especially kids, they expect to get everything right away. So you don’t want things sitting around for very long. That’s why we’re seeing leasing in the 10,000 to 20,000-square-foot rang, and that’s really helping the market.”
During the past 16 years, the Inland Empire has nearly doubled its industrial inventory, from 256.6 million square feet in 2000 to 506.2 million square feet today, enough growth to make it twice the size of Orange County’s industrial market, according to Kidder Matthews.
That shows the Inland Empire industrial market was growing long before e-commerce happened, and its recent growth can’t be attributed entirely to e-commerce either, said Tom Taylor, senior vice president with Colliers International.
“I think the economy is in very good shape,” Taylor said. “The little guy is doing well, the big guy is doing well, and it’s showing up in the industrial market. So I don’t think it would be accurate to say e-commerce is the whole story.”
Taylor, an industrial broker in the Inland Empire for about 35 years, agreed that the local industrial market is as strong as its ever been.
“It’s very unusual to absorb 18 to 20 million square feet of industrial space a year and still have low vacancy,” Taylor said. “How long will it last? If I could answer that I’d be a wealthy man, but the job market is strong and the economy is not overheated. I don’t think we’ve seen the end of it.”
