[IMGCAP(1)]

IRVINE, CA and ONTARIO, CA—Lack of supply and record-low vacancy rates are common in the industrial sector throughout the Southern California region, especially in Orange County and the Inland Empire, Voit Real Estate Services executives tells GlobeSt.com. After recently speaking with several of Voit's new board of directors about what to expect for the industrial market in 2016 in their respective markets, we continued the discussion with two more BOD members Trent Walker, EVP in Voit's Irvine office, and Frank Geraci, EVP from Voit's Ontario office in Riverside County.

GlobeSt.com: What's ahead for industrial in your market in 2016? What's looking up and what are some of the challenges?

Walker: The Orange County Airport and South County industrial markets will continue to see upward movement in lease rates and sale prices in 2016. We are predicting an increase of 7% to 10% over the next year. Vacancy rates are at historic lows, and it will become more difficult for users to find space.  We will see more off market deals done as well. 

There is very little land available for development. What has and will come to market is priced too high to justify industrial development. Office, retail, and residential projects will continue going forward in these markets. In fact, many industrial buildings are being repurposed. There have been multiple industrial buildings with excess land converted to creative-office projects. 

The industrial base for the Orange County Airport and South County markets comprises a very diverse and innovative group of companies. Many are expanding, and this will continue to increase demand for industrial product in 2016, causing the predicted increase in lease rates and sale prices.

[IMGCAP(2)]

Geraci: It's a great time to be a landlord or a seller in the Inland Empire due to a lack of supply and record-low vacancy rates. The industrial market for the Inland Empire will continue to see upward movement in lease rates and sale prices in 2016. We are predicting that average asking lease rates and values for industrial product in the IE will increase by 7% to 10% over the next year. You can thank e-commerce, a rebounding economy and shrinking industrial bases in Orange County, L.A. and South Bay for the Empire's success. The Inland Empire is now one of the only choices to turn to for new construction in most any size range, oftentimes for half the cost of other market's rental rates and sale prices. The best indicator of the health of an industrial market is internal expansion, and companies like General Mills, Stanley Black & Decker and Georgia Pacific have all expanded existing warehouses here. 

Currently, there is approximately 25 million square feet of industrial space under construction, in all size ranges from 10,000 square feet to 1 million square feet, which surpasses construction levels not seen since 2005. Occupancy has increased by almost 20 million square feet per year for the last two years, in a market that averages about 15 million square feet of positive absorption per year since 2000. Vacancy rates and cap rates are at historic lows, while demand from users and investors doesn't show any signs of slowdown. "Core" for institutional capital is now the west part of the Inland Empire; a decade ago, core was considered Commerce or Vernon. 

We are now seeing frequent expansion plans from businesses in various industries throughout the region, and we are even seeing new businesses begin to emerge. Take, for example, Wayfair, an online furniture company that recently signed a lease for 783,000 square feet in Perris, or QVC, which plans on initially hiring more than 500 people to operate its first West Coast distribution center, currently under construction in Ontario. They expect to double that count to 1,000 employees by 2020. Amazon now has an industrial "footprint" of more than 5 million square feet; it had no warehouse presence in the Inland Empire four years ago.

The expectation going into 2016 is that as companies continue to try and become more efficient through consolidation and expansion, there is only one place to go, and that is east. As a result, there is increased demand for industrial product, which will put downward pressure on availability in 2016 as businesses continue to expand and employment numbers increase, particularly in building sizes of 200,000 square feet and below.

We expect 2016 to be even more challenging for buyers and tenants to find the space they need, which is the catalyst of the rising occupancy costs in the industrial sector.