August 12, 2016
By Dennis Kaiser
The Inland Empire isn’t often considered a retail powerhouse market, which is natural given the dominance of the industrial sector. But a mid-year check-in with Progressive Real Estate Partners’ Brad Umansky reveals retail is hot and is expected to remain so. Connect Media’s Dennis Kaiser got a snapshot of the market trends in our latest 3 CRE Question & Answer feature:
Q. Where does the Inland Empire retail market stand at the mid-point of the year? What are the main highlights?
A. The demand for retail space in SoCal’s Inland Empire market is the strongest it has been since 2007. Rents for new projects are exceeding the pre-recession highs, vacancy continues to decline moderately, cap rates are at historic lows, and national retailers are competing aggressively for the best locations, while market fundamentals across the board continue to improve. The unemployment rate in the IE is down to 5.3%, and it’s poised to go even lower by the end of the year.
Q. How do those factors impact the Inland Empire retail market?
A. Retail Absorption is Up: In the first six months of the year, we saw about 478,000 square feet of net absorption which is almost as much as ALL of 2015 (500,000). There is currently 14.7 million square feet of available space to lease. We are experiencing challenges in leasing the last spaces in many centers due to the fact that for every space that gets leased, the universe of potential users goes down because of a variety of factors.
Rising Lease Rates: We have signed many leases in the IE at north of $3 per square foot in newer high quality centers. We have also signed many more at rates of $1.25 to $1.75 per square foot in older lesser quality centers, which are the rates that these same properties commanded 15 years ago. This huge variance in lease rates makes understanding the marketplace very challenging for all.
Q. What is driving growth in the Inland Empire retail sector?
A. Retail Sales and New Categories Drive Growth: Retail sales continue to improve, and we’re seeing a shift in the types of users that are most active in the marketplace. In this new omni-channel world, service, health, beauty, restaurant and entertainment users, all of which benefit from being internet resistant, are filling the space.
Be sure to register for Connect Inland Empire on October 6 to find out more about the region’s economy and CRE.
For comments, questions or concerns, please contact Dennis Kaiser