Inland Empire East Industrial Can Be Unpredictable

The Inland Empire West was once an outlying industrial market. Now, it is an infill market with strong demand from industrial users in all size categories and a tightening supply of both product and land for new development. Move further east, however, and demand starts to waver. Despite this dichotomy between the two halves of the Inland Empire, both sides are responsible for strong new development activity. According to research from JLL, more than 7 million square feet of product came to market in the Inland Empire West last year, while more than 14 million square feet delivered in the Inland Empire East.

“The Inland Empire West, for all intents and purposes, is now an infill market where we continue to experience historically low levels of supply and strong demand by occupiers across all size categories,” Patrick Wood, managing director at JLL, tells GlobeSt.com. “But as you move further east, demand typically becomes more unpredictable. Specific size and geographic segments in the IE East will get soft for an extended period, then without rhyme or reason, a number of transactions will occur in a short period of time, and that segment will clean itself up.  The IE East requires much more patience than the West.  The exception in the East has been the mega-box of 700,000-plus square feet segment where demand has been continually fueled by the ecommerce boom. The coastal markets in Southern California are all running on low single-digit vacancy rates, with little land available for new development. In general, that has made the Inland Empire an attractive alternative, fueling this massive construction pipeline. This demand driver coupled with a laundry list of obstacles for new construction has helped to keep building in check. “It’s a challenging climate for developers to obtain entitlements for new development projects,” says Wood. “Coupled with the rapid increase in construction costs and appreciation of land values, it is not easy to get projects out of the ground.  As a result, I think the building pipeline is much more in equilibrium with user demand compared to the prior development cycle of the mid-late 2000’s.”

With so much construction activity, however, the availability of developable land is now limited in the Inland Empire, and construction activity could begin to slow in the future. For now, however, construction activity will remain strong. “We’re running low on large parcels of industrially zoned land that is unspoken for in the Inland Empire proper,” says Wood. “But there are several large developments in burgeoning areas such as the Chino Airport submarket that will keep the construction pipeline strong thru 2019.  We benefit from attracting the country’s most prolific pool of developers, who with aid of a talented brokerage community, continually churn out new development projects.  I think the prospects for new development in the Inland Empire is strong.”

Because there are few other places to go that are as proximate to the Ports of Long Beach and Los Angeles, the Inland Empire will continue to see strong use demand, even as far out as the eastern market. “The Inland Empire is the center of gravity for the clear majority of sizeable requirements that enter Greater Southern California. While labor is a challenge, the availability of warehouse labor in the Inland Empire is still better than our neighboring markets of Los Angeles and Orange County,” says Wood. “Add in that our market is littered with state-of-the-art facilities offered at significant discounts to LA/OC, it’s a simple for a user to decide where to locate.  Tenants that consider the Inland Empire but end up locating elsewhere in Southern California, or even in the Central Valley, Phoenix, Reno, etc., typically do so for an underlying reason that was pre-determined when the business case for the requirement was created.”