IE Business Daily Business news for the Inland Empire.
E-commerce and “big box” projects will continue to drive the market, although construction of new logistics projects might slow a bit, according to several experts.
The Inland Empire’s logistics market turned in another spectacular year in 2019, and that trend is likely to continue in 2020, according to several Inland brokers who deal exclusively in industrial projects.
Unlike its office market, which struggles to hold its own with Los Angeles and Orange County, the Inland industrial market is among the biggest – if not the biggest – logistics markets in the United States.
The numbers compiled in the third quarter alone are eye-popping: pre-leasing of completed projects totaled more than 2.9 million square feet, which worked out to 53 percent of all logistical leasing in that three-month period, according to CBRE’s third-quarter industrial report.
That trend is expected to continue, given the demand for modern, state-of-the-art industrial facilities, CBRE stated.
Net absorption during the first three quarters of 2019 was 13.9 million square feet, with the east end accounting for 91 percent of that activity. The east end includes Riverside, Perris, Redlands and Moreno Valley, and it’s attracting more industrial development than the west side – Ontario, Corona, Rancho Cucamonga – because it has more affordable land.
The eastward trend is also expected to continue, according to CBRE.
Vacancy during the third quarter was 3.1 percent, the 11th consecutive quarter that industrial vacancy was below four percent. Strong demand for all sizes of logistics operations kept vacancy low, even though there was a flood of construction – 27.1 million square feet – during that time.
Demand in the third quarter, and for the year, was strongest for industrial properties under 200,000 square feet and larger than 800,000 square feet. Average lease rates were 61 cents per square foot, compared with 91 cents in Los Angeles County and 95 cents in Orange County.
In short, CBRE could find no weaknesses with the Inland industrial market.
“Overall, the market showed no signs of slowing, setting the stage for another exceptional year with more big deals in the works,” the report stated.
But one veteran industrial broker predicted the market might cool slightly on the construction side, although there will still be plenty of business at the ports in Los Angeles and Long Beach.
“I think it will definitely stay a hot market, but maybe not quite as hot as we’ve seen the last couple of years,” said Chuck Belden, vice chairman with Cushman & Wakefield Ontario. “Lease rates will remain steady, but I don’t think we’ll see as much construction as we’ve seen in the past. We’re running out of land, especially on the west side.”
Because of that, the eastward trend of warehouse-distribution development that CBRE identified will continue in 2020, but it will also keep moving north into the High Desert and the Banning-Beaumont area, Belden said.
President Trump’s threatened trade war with China has many in the Inland Empire concerned because so much of what’s imported into the Inland region is made there. For nearly two years, the possibility of a trade war between the two superpowers has disturbed world financial markets, but it’s local impact should be negligible in 2020, according to Belden.
“I don’t see it as a big concern, at least for now,” he said. “We’re still seeing activity at the ports. But we’re also seeing a lot of shipments go through the [expanded] Panama Canal directly to the eastern seaboard, and I think that will continue next year.”
“Big box” and e-commerce will continue to drive the Inland industrial market in 2020, said Dan de la Paz, executive vice president and industrial specialist with CBRE Ontario.
“We’re going to keep seeing a lot of absorption, and some construction, especially on the east side,” de la Paz said. “It’s going to stay a hot market.”
