October 16, 2017 Comments Off on Strong Demand Drives Inland Empire Industrial Construction, Tight Vacancy Views: 1186 California News, Inland Empire

Strong Demand Drives Inland Empire Industrial Construction, Tight Vacancy

By Dennis Kaiser

Connect Inland Empire is coming up this Wednesday (October 18th) at Chaffy College in Chino, CA. Commercial real estate leaders will gather again to dive into the biggest trends shaping the Inland Empire industrial market. We asked Marcus & Millichap’s Cody Cannon to share a few insights in our latest 3 CRE Q&A.

 Q: What are the primary trends you are tracking as they relate to investing in industrial real estate across the Inland Empire?

A: Strong industrial demand. The metro’s proximity and ease of access to the large population centers within Southern California drive the industrial market. Vacancy has been cut in half since the previous recession peak, making local properties more attractive to investors.

Demand prompting construction. Construction reaches the highest rate in the nation this year, as the relative availability of land and lower development costs compared with Los Angeles have resulted in a number of large speculative projects in the construction pipeline.

Vacancy remains tight in most submarkets amid construction surge. The heightened level of construction this year will place moderate upward pressure on the metrowide vacancy rate, but the rate is expected to remain under 6% in most submarkets. Vacancy in the Airport area was 3.8% in the third quarter, despite the addition of 6.4 million square feet year to date. North San Bernardino is the only submarket with double-digit vacancy.

Q: How are those factors playing out in the market in terms of investment strategies, both from a buy and sell perspective?

A: Robust demand and strong rent growth provide owners with higher cash flows but provide less incentive to sell. Owners without a long-term hold strategy may find this an opportune time to list.

 While buyer demand is piqued, some developers will list recently completed buildings attracting institutional investors to the region.

Surging rents and relatively tight vacancy are motivating investors to deploy capital into the Inland Empire’s industrial assets, but demand outpaces available listings keeping many buyers waiting on the sidelines.

Properties along the exits of major transportation routes into Los Angeles and Orange County, as well as buildings in Ontario, Riverside and Rancho Cucamonga especially garner buyers’ attention, however, these properties are generating cash flows, making owners less motivated to divest.

Q: What are some examples of the types of deals getting done today, and how do you see that shifting in the future?

A: While warehousing buildings will dominate transaction velocity in 2017, activity is picking up for well-located manufacturing and distribution centers. The growth in e-commerce spurs interest in distribution facilities.

Sizable demand for industrial space amid still tight vacancy in many areas of the metro accelerates speculative development, and as these buildings are leased, some of the properties will likely be listed providing additional buying opportunities.

Areas with low vacancy rates and rising rents, such as South Riverside and West San Bernardino, will attract buyers.

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