Tight Industrial Supply Keeps Driving Inland Empire Deals

Unrelenting demand for tight industrial space appears to be keeping deal pricing at a vigorous level in the Inland Empire, which has had no measurable warehouse vacancies for several months. 

KKR underlined this point this week when it acquired a 281K SF warehouse at a key transit point in the Inland Empire for $135.6M from Parker House Furniture.

The Class A industrial building, which was built in 2017 and features a 148-truck court, is located in Eastvale, CA. The facility is in proximity to Interstate 15 and within 60 miles of Los Angeles International Airport and the ports of LA and Long Beach.

“We are continuing to invest in high-quality industrial real estate in strategically located, irreplaceable locations which we believe will continue to remain a mission-critical part of the supply chain for businesses of all sizes, said Ben Brudney, KKR director, in a statement.

Parker House Furniture will continue to occupy the Eastvale warehouse as a tenant.

Inland Empire remains the hottest industrial market in the nation. According to JLL’s Q2 2022 industrial market report for Inland Empire, asking rates increased another 13.7 percent in Q2 while vacancies dipped to a microscopic 0.4%.

JLL’s report said leasing activity in the Inland Empire has slowed considerably due to the lack of available space to lease; pre-leased space was the primary driver of net absorption during Q2 as existing availability remained extremely limited.

The lack of available space has driven a record amount of new warehouse construction in the Inland Empire. During Q2, another 9.2M Sf was added to the development pipeline, which now totals nearly 40M SF.

The competition for industrial space in the Inland Empire is so fierce that new construction is being pre-leased before ground has been broken for the warehouse projects: United Legwear recently signed a 1.7M SF lease for a warehouse that will be built in the City of Beaumont, a project that has yet to break ground.

While JLL concluded that strong market fundamentals, including record demand, have Inland Empire well positioned for a strong H2 2022, the report included some cautionary notes. The report said some lower credit tenants are beginning to pull back from leasing industrial space in the market.

JLL also warned that growing NIMBY pushback to warehouse sprawl in the Inland Empire could disrupt the market if what it called “anti-warehouse” legislation at the state and local level is enacted.

The overall warehouse footprint in the two-county region that stretches from the LA city limits to the Arizona border is estimated to be more than 1B SF, most of which has been filled to capacity since the end of 2021.

Warehouse moratoriums have been proposed in more than a dozen communities in the Inland Empire, with advocates citing truck traffic that has made the region a national leader in air pollution, GlobeSt.com reported.