The Inland Empire Hits Record Absorption Numbers in 2020

The Inland Empire industrial market continues to break records. A new report from JLL shows the market recorded an impressive 26 million square feet of absorption in 2020 with activity surging at the end of the year.

There is no doubt that e-commerce demand, driven by increased online shopping during the pandemic, drove the market activity, but JLL’s Mike McCrary says that the demand drivers are more nuanced that just a general increase in online shopping. “Corporations have had to redesign their network to accommodate the demand from consumers to get products delivered to their homes. We have seen a decade of growth in six months,” McCrary tells GlobeSt.com. “All of the sudden how we used to do business isn’t the same. There has been a very rapid adjustment to ensure delivery to the consumer. That has driven a lot of the growth.”

In addition, brick-and-mortar warehouse support expanded to supply popular essential goods to local stores. Items like toilet paper and non-perishable food products that were flying off the shelves. “You have to remember that many ecommerce companies are selling essential items,” says McCrary. “As we have seen a rush on the stock in stores, corporate America has also had to bolster their stock in these buildings to make sure that we don’t run out of essential items. People are going to the market more often because they are at home more often, so the distribution channels are changing.”

Still, it is surprising that the Inland Empire, which was already a popular and tight market, had the capacity to supply this new demand. McCrary says that is thanks to a robust construction pipeline. “The reason that we are recording these extraordinary absorption numbers is because we have the ability to continue to develop land into industrial,” he says. “In the infill markets, it is far more difficult to develop new industrial. We have charged through our available building supply, and vacancy rates are tumbling to the lowest that they have been on record.”

The capital markets also supported new activity both pre- and post-pandemic. “So, you have a combination of extraordinary demand, available inventory and we are the darling for investment capital,” says McCrary. “That leads to optimism around ownership, which means optimism around supporting the development community to record spec product.”

The construction activity could slow next year. In 2020, new project starts did pause for a moment, and with demand already exceeding supply, there would be a shortage of product. “There will be a slowdown in deliveries to be sure,” says McCrary. “That is simply COVID-driven. Cities and counties have required the workforce to shelter at home, and the task of getting entitlements has become elongated. We will see a slowdown in the development cycle, but with the optimism, developers are working closely with cities to get projects approved.”

The supply-demand imbalance will trigger increased rental rates this year. “We are looking at a tight 2021 because there are fewer buildings available, and as a result, rents will skyrocket,” says McCrary. “There is nothing to hold them back. When you have two or three parties looking at a building, someone is going to win the bidding race. My anticipation is that there will be strong rent growth through 2021.”