Industrial Pipeline Grows to 27M in Inland Empire

The industrial construction pipeline in the Inland Empire has grown to 27 million square feet. According to a recent report from Savills, there is a total of 30 million square feet of industrial construction in all of Southern California, meaning the Inland Empire region accounts for a majority of the total development in the market.

“Demand is outpacing existing supply and the current development pipeline is around 40% pre-leased,” Jeff Cannon, executive managing director at Savills, tells GlobeSt.com. “For properties larger than 500,000 square feet, in many cases, there are multiple users evaluating the same property. These conditions are pushing the significant uptick in construction activity.”

While there is significant development activity, the demand in the market supports it. There is a sub 2% vacancy rate in the Inland Empire, and for the reason, Cannon has no concerns about oversupply. “The current supply and development pipelines appear to be in equilibrium with demand,” he says. “We don’t believe there is much over-supply risk in the near future.”

The majority of the demand continues to come from e-commerce users. “E-commerce uses continue to be a significant tailwind propelling demand for class-A industrial real estate,” says Cannon. “Any user with a wholesale or retail channel is focusing on expanding its direct-to-consumer platform, which tends to benefit from newer space with automation and sophisticated material handling systems. Those systems, coupled with inventory requirements, create demand for more space.”

The Inland Empire continues to have a strong need for industrial space, and the construction pipeline will remain robust as long as there is demand. “Our outlook is that construction activity is needed and healthy,” says Cannon. “Furthermore, rental rates continue to push higher and support the economics behind new construction.”

For users looking for space in the Inland Empire, Cannon recommends looking two years prior to the lease expiration. “Users who have significant upcoming capital projects should be evaluating their real estate on an ongoing basis and have a real estate strategy in place at least two years prior to their existing lease expiration,” he says. “This is in order to plan the most efficient supply chain network, operational layout, and to take advantage of industrial product under construction that will be delivered around the time they need it.”