Big Box Demand Drives Inland Empire Activity

Big box demand has helped to prop up industrial activity in the Inland Empire during the pandemic. A new report from JLL shows positive net absorption, rising asking rents and a 4.1% vacancy rate in the second quarter, even as the pandemic roared on. Big box activity was largely the force behind the market activity.

“The strong Inland Empire industrial performance makes perfect sense when you think about it because that is where all the essential goods are stored,” Mike McCrary, managing director at JLL, tells GlobeSt.com. “People need toilet paper, toothpaste and unsexy daily needs items. Additionally, with this crisis, more generations are being forced and accustom to using ecommerce, which is also factoring into the growth. Since mid-March the percent of the population ordering goods online has gone from about 15 percent to around 26 percent, which is expected to continue to grow. Additionally, according to Forbes, online orders as a whole are up about around 146 percent year-to-date through May in the U.S. and Canada.”

The Inland Empire is the premier market in the country for big box warehouse storage, so it isn’t surprising that it continued to see strong demand and activity through the economic dislocation. “The Inland Empire is where most manufacturers and retailers store these goods before it hits the stores or before it gets delivered via ecommerce,” says McCrary. “The pandemic is also proving that the ‘Just in Time’ model has deficiencies. To combat that, we expect corporate America manufacturers and retailers to start having “safety stock” in their warehouses in the future to prevent running out of product.  This trend will create more demand for large industrial space in the Inland Empire.”

Because of the increase in ecommerce activity, many investors see industrial as the most resilient asset class during the recession. These numbers support that investment thesis. “The JLL Inland Empire Q2 numbers definitely affirm what we are seeing on the ground, which is continued demand for large warehouse and distribution space,” adds McCrary. “The Inland Empire industrial passed the crisis test from an investment and global supply chain perspective as well as we have continued interest to be in this market.”

While most of the numbers during the second quarter were positive, the report also showed an increase in concessions, which included shorter lease terms, some free rent and lower lease rates. “The increase in concessions was an anomaly due to the reaction of the COVID crisis,” Neda Hooshiar, an associate at JLL, tells GlobeSt.com. “We really only saw concessions from about mid-March until mid-April with the initial uncertainty of how the Inland Empire industrial industry would react.  Concessions are now in the past but we may see them come back again for the 100,000-square-foot and smaller size range with the expected second wave of COVID.” McCrary adds that landlords have actually started to go in the opposite direction. “In fact many landlords are being more selective with a prospective tenant, increasingly scrutinizing the credit worthiness of the tenant,” he says. “Inland Empire big box activity has been driving the market.”