October 25, 2018 Comments Off on The Economy & Growth Drive Opportunity in the Inland Empire Views: 3422 California News, Top California

The Economy & Growth Drive Opportunity in the Inland Empire

Connect Inland Empire returned to the Ontario Convention Center on October 24 for an annual conference that attracted 250 commercial real estate professionals for an afternoon of informative panels, networking and cocktails. The conversations centered around the impact of population, employment and e-commerce growth that have served as key drivers of the industrial development market. Not only has the Inland Empire emerged as a well-connected region, its future prospects remain bright.

We will be sharing deeper dives from each panel in the coming days, but here are a few highlights from the day’s discussions:

The New Face of the Inland Empire: Where the Growing Population Lives, Works and Plays

The City of Moreno Valley’s Mike Lee noted that it is a “wonderful time to be in the Inland Empire,” because “all property types are running on all cylinders.” He says over the past five years he’s seen a shift from the ‘big bombers’ (large industrial facilities) to smaller project sizes, typically in the 200,000-square-foot range. That change typically is being driven by companies that support the bigger occupiers, like Amazon.

Marcus & Millichap’s Cody Cannon notes the Inland Empire offers the “greatest yield” for property types compared to other markets. He says, “The Inland Empire is the best market in California to invest in.” Because of the strong demand drivers and demographic shifts that have taken place, he believes the Inland Empire should also whether any potential downturn better than other markets.

MGR Real Estate’s Mike Rademaker notes a trend he is tracking on the office side are tenants relocating from other SoCal markets. That could be because of a price squeeze or simply because companies want to be located near where their employees live. He pointed out an existing 20,000-square-foot tenant in one of its Inland Empire buildings that also had a 43,000-square-foot space in Irvine. The company elected to move its entire operations to Ontario to be closer to its employee base.

Lee & Associates’ Tom Pierik points out that there is demand for office space in the region, yet there are very few office developments under way in the Inland Empire. He notes if a company wants to expand, there’s no space for growth and a company with a 40,000-square-foot requirement may need to stay put in Los Angeles or Orange County for now. The last cycle the market got overbuilt, but due to stricter lender control, there hasn’t been office development and now there’s a “need for office development.”

Brookfield Residential’s Dave Bartlett says the Ontario Ranch master-planned community has emerged on the scene over the past few years. It is now ranked No. 11 on the national list of Best Selling Communities, and is creating demand for a host of CRE development ranging from multifamily to retail. “This is a complete community that has come to life,” he says.

Related California’s Stan Smith says their development activity is focused on affordable or attainable housing that uses tax credits. He notes it is a “small segment” of the market, but yet an important one with sustained demand. He believes it is key to provide housing options for the service sector that fits between the low income Section 8 resident and those who can afford to pay market rate.

Ontario Airport: The Great Opportunity of the Inland Empire

CBRE’s Ian Britton noted that the Ontario Airport came under local control in 2016 and since then, it has been easy to see the value of such a shift. That has translated to new tenants and amenities at the airport, which benefits travelers, airlines and the regional economy, noting that the airport contributes $5 billion to the Inland Empire economy.

Ontario City Council’s Mayor Pro-Tem Alan D. Wapner says a significant amount of support from across the Inland Empire region “set Ontario free.” That shift has in turn benefitted the region’s economy in terms of increased passenger traffic (now on track to reach five million passengers in 2018) and a boost in air cargo. But perhaps more important, he notes, is the long-term ability for the airport to capture opportunities that may have been missed when it was operated by Los Angeles.

Ontario International Airport Authority’s Mark Thorpe called the shift to local control an “historic transfer,” that has resulted in better alignment of interests that will better serve the whole region. It also opens up new opportunities to develop land at the airport, both on-site and off-site, which is expected to provide positive impacts. As the airport leadership works through strategic plans to bring land to market, either as development opportunities or new space for lease, he predicts there will be downstream impacts that revs up a major Inland Empire economic engine. He envisions creating a balance between freight and passengers as the airport emerges as a key international trade alley.

Industrial Development and Investment: How Far Can Projects Spread?

Kidder Mathews’ David Burback notes the statistics on the Inland Empire market make it nearly impossible not to be bullish about it. “It truly has exceeded expectations. Both investment and development have exceeded expectations the past three years.” He believes the market will remain positive for the coming year to 18 months.

Caprock Partners’ Nicholas Ilagan says the company is “bullish on the market as a whole,” especially “west of the 15 [freeway] because we see opportunities there.” In terms of the types of companies kicking the tires in the market, Ilagan notes they are seeing a “tremendous amount of activity” from smaller, 200,000-square-foot and under tenants, in particular, the food manufacturing distribution occupiers that are being pushed out of the L.A. Basin’s Mid Counties submarket by higher rates.

Rexford Industrial’s Patrick Schlehuber says one change they’re seeing in the market is that tenants are tending to demand a higher level of finishes in projects. That means the 3,000-square-foot office component of a 600,000-square-foot industrial facility “can’t be plain Jane.” That may include 12-foot ceiling heights, 10-foot doors or marble counters in the office. Brokers tell him that when comparing buildings, those with higher finishes may lease nine times faster.

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