October 12, 2016
By Dennis Kaiser
The Inland Empire economy is facing such pressures as interest rate uncertainty, the presidential election and Brexit. Yet, the industrial market, its economic engine, continues to fuel growth, despite the challenges. Brokers, developers and investors shared insights on the future of CRE in the region and how to navigate the changing tides at Connect Inland Empire 2016.
Prospects appear bright for the region, even if the economy takes a hit. The Inland Empire is “well positioned to weather any downturn,” says Marcus & Millichap’s Kevin Boeve, “because of its demographics, job growth, job diversity, wage growth and infrastructure growth.” He pointed out that the labor force of the Inland Empire is now larger than the states’ of Nevada, Oklahoma, Utah, as well as the city of San Diego.
That growth has helped propel the region onto the radar of investors, as well. And it is quite a turn around from 2009 when lenders essentially shut the capital tap off to the region. Today, “lenders like the strength of the Inland Empire’s e-commerce,” says CapRock Partners’ Taylor Arnett.
This year, Los Angeles tops the list of investment targets for all product types, according to CBRE’s Mike Kendall, who says that’s the first time in his 25-year CRE career that’s happened. The result is interest is spilling over into other SoCal markets. “That’s why demand is up locally [in the Inland Empire]. The industrial product is ‘white hot’ for the institutional investor sector,” says Kendall.
Though Kendall admits, the investor pool “thins a bit,” for assets that aren’t core/core. He noted that there’s foreign capital pursuing deals. For example, Korean, Swiss and German investors were among the buyer pool for 15 Amazon assets they’ve sold this year. And he says there’s plenty of debt available for the right deals, though “we’re starting to see proceeds go down.”
A factor limiting regional growth in the past has been the fact that the Ontario International Airport has not been under local control. Since that is changing next month, MGR Real Estate’s Mike Rademaker says, despite what may happen in the national economy, “the airport will carry the success” of the region and “I will be leading the development charge.”
Another advantage the Inland Empire has is a 30-year supply of available land. That makes the region particularly attractive to e-commerce and logistics users.
“Finding land in Los Angeles is impossible” for a project to make sense,” says Arnett. It is especially “difficult” when seeking more than 5 acres needed for a project.
That’s one reason Hines elected to add the first industrial property to its portfolio in the Inland Empire. In 2015, the Houston-based firm acquired a 17-building 1-million-square-foot industrial asset in San Bernardino. “We saw an opportunity to restore an asset to its former glory in a market with improving fundamentals,” says Hines’ Varun Akula, who notes the company is exploring development opportunities in the market as well. “It was an opportunity to get in at a low basis, improve the portfolio and experience growth.”
Panelists note, the Inland Empire was one of the last markets to enter a recovery phase that began nationally seven years ago. A longer lead-up to the recovery and a strong e-commerce tailwind bodes well for the future of the region, they say.
As a result, the region may get a few extra innings in this cycle or if a downturn occurs, the affect may be delayed. It may translate into the region continuing to go up while other markets start to decline. Hines’ Akula says it very well could mean a “softer landing” is in store for the Inland Empire.
For comments, questions or concerns, please contact Dennis Kaiser