There Is Almost No Industrial Space Available in the Inland Empire
The vacancy rate in the nation’s top industrial has fallen to .4%, while the construction pipeline surpasses 30 million square feet.
It wasn’t always like this in the Inland Empire. Back in 2008, the industrial vacancy rate in the region was above 10%—but a lot has happened in the last 14 years. The acceleration of ecommerce, increased capacity at the San Pedro Port Complex and a global pandemic that disrupted global supply chains and amplified demand for online shopping have all contributed to booming industrial demand. As a result, nearly all of the supply in the Inland Empire has bee absorbed.
According to the most recent industrial report from JLL, the Inland Empire has a vacancy rate of only .4%. In the first quarter, net absorption totaled 2.8 million square feet and leasing activity totaled 10.9 million square feet. The limited availability of space is wearing on the sector. The quarter marked the lowest leasing activity in the market in three years. The decrease in activity is the direct result of a lack of move-in-ready supply, certainly not demand.
The development community is hurrying to ramp up production to meet demand. The construction pipeline grew 11.2% in the first quarter alone to mor than 30 million square feet. However, the availability of developable land is the biggest challenge for new construction projects, and as a result, developers are breaking ground in untested areas of the market, according to the report. Most of the sizable new projects ate taking place in the northern, eastern and southern most borders of the Inland Empire.
For owners that do have available properties to rent or leases that are turning over, the market fundamentals are a boon. Lease rates are up a staggering 17.7% quarter-over-quarter to $1.16 per square foot.
JLL expects the market to remain tight over the near- and mid-term, but says that relief is coming. The construction pipeline is at a record high, and the limited supply is pushing developers to continue to find opportunities to build. In March, for example, Staley Point Capital, in joint venture with Bain Capital Real Estate, acquired a two development sites in the Inland Empire for $37 million. The purchase includes a 7.4-acre land site in Corona, CA, and a 4-acre land site in Fontana. The develop plans to build 250,000 square feet of industrial on the two properties. Both sites were purchased in off-market transactions.