Empire of Mega-Warehouses Keeps Growing in SoCal

The economic slowdown has yet to dent the growth of the industrial market in Southern California’s Inland Empire, which recorded overall net absorption of 5.3M in Q4 despite 7.8M SF of deliveries.

While there were indications—particularly in the West submarket—that occupiers downsizing footprints are impacting on warehouses in the 100K SF to 300K SF range, the overall market is being driven by the arrival of pre-leased mega-warehouses, according to Newmark’s Q4 industrial market report.

Even with deliveries outpacing the growth of absorption in Inland Empire in the fourth quarter, the overall vacancy rate in the market—which early last year was as low as 0.4%—hovered at about 1.3%. Inland Empire is a region stretching from the LA city limits to the Arizona border, encompassing Riverside and San Bernardino counties, with an industrial inventory now totaling 677M SF.

Amazon, Skechers, Syncreon Technology and NFI all moved into new Inland Empire facilities larger than 500K SF in Q4. The pipeline for pre-leased mega-warehouses includes five 1M SF facilities set to arrive this year, facilities that are slated to be occupied by Target, Home Depot, Shopify, Amazon and Shein.

Pre-leasing of extra-large (500K+ SF) facilities in Inland Empire averages more than 60% encompassing about 26M SF, Newmark reported.

“Facilities in excess of 500K SF are expected to perform well since they cater to Fortune-ranked companies that are seeking the economies of scale a modern large-box facility offers, including, but not limited to, higher storage capacities and the ability to automate operations,” Newmark said.

However, Newmark’s report noted that sub-500K SF warehouses have more “exposure” to macro-economic headwinds because less than 15% of 16M SF now under construction in the smaller segment is pre-leased,

“Assuming this figure does not increase, and more vacancies occur, then rent growth in this segment will cool at a faster clip than its larger counterpart,” Newmark said.

Available sublease space in Inland Empire totaled 4.4M SF in Q4, with Newmark reporting that companies who are listing “large block” sublease offerings include Amazon, MCS Industries, The Unical Group and Pharmapacks.

An indication of economic headwinds buffeting smaller warehouses was seen in the Inland Empire’s West submarket, which recorded negative net absorption in the fourth quarter for the first time in eight years.

According to Newmark, the West’s net absorption of negative 371K SF was the result of vacancies in the 100K SF to 300K SF segment as occupants shed space.

Among the companies trimming their footprints in the West were General Motors, World Depot, RAK Logistics, Furtech, Luminence Brands, Infinity Trans USA and New Flyer of America.

“The backstory of each varies, ranging from consolidations to newer facilities, downsizes and an instance where a landlord evicted a tenant for late rent payment in order to list the former tenant’s space at a far-higher market rent,” Newmark said.

Industrial landlords across Inland Empire are offering better deals for pre-leases of smaller warehouses now under construction, Newmark said.

“Landlords want to de-risk their under-construction projects and are willing to negotiate now with aspiring tenants instead of waiting closer to the eve of a building’s completion. This is especially true in the 100,000- to 300,000-square-foot segment,” Newmark said.”