The Inland Empire is one of the top growth markets in Southern California. With substantial inward migration—especially as affordability issues become more severe in coastal markets—the Inland Empire has an expanding residential market and a need for more retail options to serve them. According to research from CBRE, the retail vacancy in the market decreased 20 basis points in the third quarter with leasing transactions totaling 327,665 square feet. Lease rates also increased during the quarter to $2.05 per square foot.
“The Inland Empire is a rapidly expanding residential market and one of the only true growth markets in Southern California,” Ian Britton, the managing director of the Ontario office for CBRE, tells GlobeSt.com. “In Ontario Ranch alone, 8200 acres are currently being developed for residential with a diverse mix of inventory and was recently recognized as number 11 of the best-selling new communities nationwide. The Inland Empire offers an affordable outlet to Orange County and the San Gabriel Valley, and the new buyer pool consists primarily of millennials. These young professionals and families are looking for connectivity, fun and specialization when it comes to retail. There has been a movement towards neighborhood centers offering local entertainment and dining options, bringing people of all age groups together.”
Both the Riverside and San Bernardino markets have benefitted from the increased demand for retail. In particular, demand is focused in Fontana, Corona and Rialto. “The City of Fontana with City Center Place, 101,77 square feet; Metro at Main in Corona, a 70,000-square-foot-plus shopping center in Corona near the Metrolink Station as part of a 868 unit high rise residential project; and the Renaissance Marketplace in Rialto, 361,000 square feet, are prime examples of the expanding retail presence in the Inland Empire,” says Britton. “Each project incorporates a unique mix of tenants and design elements that are specific to the communities they serve.”
Like national retail trends, the Inland Empire is seeing the most activity from the five Fs: fitness, food, furniture, fun and fashion. In the Inland Empire, these tenant types are responsible for most of the new leasing activity. “Repurposing older, “big box” assets is another major trend,” adds Britton. “A recent example is in Rancho Cucamonga where a former JC Penny, 85,000 square feet, was transformed into an artisan food hall know as Haven City Market, featuring boutique food and beverage retailers. The Food Lab in Riverside has also been well received and our team feels this localized, experience-based retail is where the sector is moving.”
Capital sources are already picking up on the new demand. Investment activity and demand is increasing, especially for daily needs or grocery-anchored shopping centers. “There is a considerable amount of 1031-exchange capital in the market, targeting assets below $5 million, all cash,” says Britton. “Cap rates have remained somewhat stable at 6.1% on average, but the total investment dollars into the retail sector is down slightly compared with 2017 figures. Specific segments of the market such as single tenant net leased assets continue to be in high demand, and we are even seeing some cap rate compression in this segment.”
So far, NOI growth has offset the rise in interest rates, and pricing is stable, according to Britton. “Rents for larger, grocery anchored centers as well as in neighborhood centers have grown roughly 8% as compared with this time last year,” he says. “Smaller, privately owned centers are more impacted by rising interest rates.”
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Kelsi Maree Borland
