IE4Q16
Fourth Quarter 2016 MARKET REPORT
Inland Empire Industrial
FUELING A GROWTH SPURT. Industrial vacancy rates in the Inland Empire have fallen to
4.5% from 12.8% since the recession. E-commerce and the trend towards omni-channel fulfillment
have spurred companies to lease new, speculatively built, more efficient buildings. Developers
have built more than 60 million square feet of speculative product in the last two years, which
has primarily been leased to major corporations who plan on operating fulfillment centers and
logistics centers to accommodate the growth led by e-commerce and mobile commerce. As of
the fourth quarter 2016, 20.3 million square feet of industrial space was under construction in the
region — about 83% of the total for all of Southern California.
VACANCY. Positive absorption is another favorable sign, and is particularly significant given the
market’s high development profile. The vacancy rate decreased in the fourth quarter to 4.50%,
down from 5.33% in the third quarter. From a historical perspective, the fourth quarter vacancy
rate is 2.76 percentage points lower than the 7.26% average recorded since the beginning of
first quarter 2007. This milestone has never before been achieved in the Inland Empire since its
inception as an industrial market in 1983.
LEASE RATES. Average asking lease rates have surpassed their 2007–08 peak as average
triple-net lease rates are now at $0.57 for the fourth quarter of 2016, up an average of 15 cents
per square foot (35.71%) from the same quarter last year and 6 cents per square foot (or 11.7%)
over third quarter figures. Lease rates for Class A product continue to spike, particularly in the
Western IE in the more recent active size range of 100,000–300,000 square feet. Expect further
rent increases in the 4–6% range on an annual basis.
VACANCY VS.
AVERAGE ASKING LEASE RATE
PercentRate
$0.70
14%
FORECAST
$0.57
12%
$0.60
10%
$0.50
8%
$0.40
6%
$0.30
$0.20
4%
4.50%
$0.10
2%
$0.00
0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
VACANCY: Total Vacant Space Divided by Total Existing Inventory
AVERAGE ASKING LEASE RATE: NNN / SF / Month
TRANSACTION VOLUME &
NUMBER OF TRANSACTIONS
SF Millions
Number
60
2,400
TRANSACTION ACTIVITY. Inland Empire’s sale and leasing activity in the fourth quarter
50
2,000
totaled 10.8 million square feet, down from 15.39 million square feet in the third quarter. Although
leasing activity was down and a majority of the transactions occurred in smaller blocks of space
(as compared to previous quarters), notable lease transactions for the fourth quarter include:
40
1,600
• Bob’s Discount Furniture lease of 806,322 square feet at 6227 Cajon Boulevard in San
Bernardino
1,596
30
1,200
20
800
10
400
0
0
• Geodis lease of 616,551 square feet at 13053 San Bernardino Avenue in Fontana
2007
2008
2009
SALES
• GoPlus Logistics lease of 444,669 square feet at 11250 Poplar Avenue in Fontana.
2010
LEASES
2011
2012
2013
2014
2015
2016
NUMBER OF TRANSACTIONS
Note: All three of these transactions are “net new” absorption.
Market Statistics
Change Over Last Quarter
4Q 2016
3Q 2016
4Q 2015
% Change Over Last Year
Vacancy Rate below 100K SF
DOWN
2.77%
2.96%
2.09%
32.54%
Vacancy Rate above 100K SF
DOWN
5.24%
6.34%
6.61%
-20.73%
Total Vacancy Rate
DOWN
4.50%
5.33%
5.22%
-13.79%
Availability Rate
DOWN
6.65%
7.00%
9.03%
-26.36%
Average Asking Lease Rate
UP
$0.57
$0.51
$0.42
35.71%
Sale & Lease Transactions
DOWN
10,806,347
15,397,852
20,710,965
-47.82%
Gross Absorption
DOWN
11,740,419
17,252,796
10,124,339
15.96%
Net Absorption
POSITIVE
5,557,083
8,173,671
5,252,789
N/A
IE4Q16 Industrial
LEASE RATES. The Inland Empire industrial market currently boasts the fastest rent growth in the nation. Anticipate asking rents to
Forecast
increase to an annualized average of 6% to reach a level of $0.60 per square foot by the end of the third quarter of 2017.
VACANCY. Developers are projected to deliver a total of 15 million square feet in 2017, to facilitate an absorption rate average of 5.2
million square feet per quarter. Although the overall vacancy rate will temporarily increase as new projects currently under construction come
online, we anticipate demand to keep up with these new deliveries, keeping vacancy rates in the 4.0–4.5% range over the next three quarters.
OVERALL. 2016’s sales and leasing were strong, speculative development was higher than the pre-recession norm, vacancy declined
and asking lease rates reached record highs. The Inland Empire market performed soundly all year driven primarily by logistics projects
500,000 square feet and larger. Demand for warehouse, distribution, and e-commerce fulfillment space should exceed supply in 2017.
CONSTRUCTION. Developers continue to deliver product at a record pace in an effort to keep
up with demand. During the fourth quarter, there were 91 buildings under construction totaling
nearly 20.3 million square feet. Demand continues to be from those tenants and users looking for
space from supply-constrained Los Angeles and Orange County where vacancy rates are at historic
lows, as well as where industrial “bases” are shrinking due to reuse / redevelopment of industrial
to multi-family or retail. Big-box projects will once again lead the way, but smaller than the 1
million square foot buildings that were constructed over the last several years. Expect 500,000
square feet and below to take the lead in the Inland Empire in 2017 as large land sites become
more unlikely to find and deliver.
AVAILABILITY. Direct / sublease space being marketed in the fourth quarter is now at 6.65%,
NEW DELIVERIES & NET ABSORPTION
VS. AVAILABILITY RATE
SF Millions
Percent
30
18%
25
15%
20
12%
15
9%
10
down from 7.00% in the third quarter. We expect availability to continue to compress with a possible
uptick in later quarters when new, speculative projects are delivered to the market.
ABSORPTION. Net absorption for the Inland Empire industrial market was 5.55 million square
6%
6.65%
5
3%
0
0%
2007
feet in the fourth quarter 2016. This trend of positive absorption has been in place for the past nine
quarters, averaging over 5.24 million square feet of positive net absorption per quarter. Primary
contributors to this trend in the fourth quarter include: Wayfair (1,224,874 square feet), Floor &
Décor Outlet of America (1,103,003 square feet) and Lularoe (633,953 square feet).
2008
2009
2010
2011
2012
2013
2014
2015
2016
NEW DELIVERIES: New Construction Delivered to the Market
NET ABSORPTION: Changes in the Amount of Occupied Space
from One Quarter to the Next
AVAILABILITY: Total Amount of Space that is Available whether
Occupied, for Sublease, or Available at a Future Date
Significant Transactions
Sales
Property Address
Submarket
Square Feet
Sale Price
6227 Cajon Blvd.
San Bernardino
806,322
Rancho Cucamonga
12320 4th St. - 2 Properties
1730 Eastridge Ave.
8747-8807 Rochester Ave.
30590 Cochise Cir.
Buyer
Seller
$68,538,500
Copper Creek Capital Partners
TIAA-CREF
284,676
$24,435,000
Rexford Industrial
Heritage Bag Company
Riverside
128,000
$19,400,000
Calavo Growers, Inc.
The Yucaipa Companies
Rancho Cucamonga
82,873
$9,860,000
AKDY Trading, Inc.
Chino Central Development, Inc.
Murrieta
122,400
$8,200,000
Bioxxel, LLC
Abbot Laboratories
Leases
* Voit Real Estate Services Deal
Property Address
Submarket
Square Feet
Transaction Date
6227 Cajon Blvd.
San Bernardino
806,322
2950 E. Jurupa Ave. - Renewal
Ontario
1000 S. Etiwanda Ave.
1730 Marigold Ave. - Sublease
345 Cessna Cir.
Tenant
Owner
Oct-2016
Bob’s Discount Furniture
Copper Creek Capital Partners
750,000
Nov-2016
U-Line
Majestic Realty Company
Ontario
302,020
Dec-2016
Nellson Nutraceutical, LLC *
IDI Gazeley, LLC *
Redlands
112,443
Oct-2016
Donney & Bourke *
Hooker Funiture Corporation *
Corona
78,050
Nov-2016
AE Company, Inc. *
Arnold Family Corona, LLC
VOIT REAL ESTATE SERVICES
2
IE4Q16 Industrial
INVENTORY
Number
of
Bldgs.
Net
Rentable
Square Feet
Square
Feet
U / C
V A C A N C Y & L E A S E R AT E S
Square
Feet
Planned
Square
Feet
Vacant
Vacancy
Rate
4Q2016
Square
Feet
Available
Availability
Rate
4Q2016
Average
Asking
Lease Rate
ABSORPTION
Net
Absorption
4Q2016
Net
Absorption
2016
Gross
Absorption
4Q2016
Gross
Absorption
2016
West
Chino / Chino Hills
884
45,958,145
3,956,366
327,114
495,937
1.08%
1,814,260
3.95%
$0.54
125,286
394,992
665,448
3,895,548
Fontana
696
57,457,332
5,544,745
4,550,470
3,615,056
6.29%
4,880,751
8.49%
$0.82
880,934
2,941,449
2,357,069
8,010,761
Mira Loma / Eastvale / Jurupa Valley
325
37,606,516
1,286,058
463,212
857,976
2.28%
778,309
2.07%
$0.65
425,643
1,238,742
435,165
2,549,993
Montclair
196
3,409,278
0
0
216,121
6.34%
534,497
15.68%
$0.52
(146,694)
(175,855)
23,663
254,338
1,423
103,210,331
1,739,063
1,496,577
2,359,582
2.29%
3,668,838
3.55%
$0.63
545,655
2,528,488
2,486,075
9,214,331
Rancho Cucamonga
713
38,670,014
45,783
602,852
1,807,900
4.68%
2,197,927
5.68%
$0.55
191,943
(696,668)
736,153
2,535,684
Upland
251
3,968,201
88,338
0
134,765
3.40%
255,378
6.44%
$0.00
2,189
(21,072)
29,873
156,664
2,694
32,426,490
75,690
118,824
696,594
2.15%
1,168,026
3.60%
$0.74
41,083
(57,744)
433,274
1,733,326
Ontario
5,000-24,999
25,000-49,999
676
23,582,977
506,422
691,211
813,552
3.45%
1,205,857
5.11%
$0.72
63,159
(230,405)
409,717
1,443,359
50,000-99,999
417
29,110,924
435,148
374,134
596,145
2.05%
1,252,733
4.30%
$0.59
292,471
345,325
599,606
1,987,530
100,000-249,999
402
61,081,432
1,812,319
1,274,036
1,915,813
3.14%
3,708,123
6.07%
$0.55
516,263
1,301,736
1,864,128
5,934,626
250,000-499,999
206
73,422,551
2,153,523
766,219
3,183,484
4.34%
3,706,022
5.05%
$0.00
1,431,356
859,137
2,366,687
7,364,059
93
70,655,443
7,677,251
4,215,801
2,281,749
3.23%
3,089,199
4.37%
$0.00
(319,376)
3,992,027
1,060,034
8,154,419
4,488
290,279,817
12,660,353
7,440,225
9,487,337
3.27%
14,129,960
4.87%
$0.59
2,024,956
6,210,076
6,733,446
26,617,319
500,000 plus
West Total
East
Banning
48
967,407
0
786,984
6,617
0.68%
115,372
11.93%
$0.92
0
13,559
0
23,742
Beaumont
42
2,327,914
0
2,544,848
444,455
19.09%
444,455
19.09%
$0.00
0
17,807
1,500
19,307
Bloomington
89
4,507,522
0
0
184,504
4.09%
350,363
7.77%
$0.40
(40)
(10,785)
920
132,158
Corona / Norco
946
30,636,805
369,732
313,224
1,671,051
5.45%
1,959,725
6.40%
$0.52
164,478
107,298
302,544
1,334,539
Colton / Grand Terrace
162
8,565,241
179,233
1,751,881
278,208
3.25%
300,921
3.51%
$0.00
(101,594)
(79,017)
30,820
188,143
78
20,781,431
400,935
4,517,255
666,059
3.21%
1,470,201
7.07%
$0.84
1,099,310
2,004,594
1,110,883
2,143,953
Perris
178
18,431,857
1,804,060
6,373,128
674,370
3.66%
791,492
4.29%
$0.85
24,651
2,309,575
41,551
2,391,125
Redlands / Loma Linda
221
26,628,286
247,800
529,990
4,115,246
15.45%
5,636,875
21.17%
$0.59
523,238
2,094,236
672,820
3,619,759
Moreno Valley
Rialto
Riverside
San Bernardino / Highland
5,000-24,999
160
22,588,589
0
3,085,249
1,673,871
7.41%
2,632,268
11.65%
$0.95
700,186
5,451,594
801,547
6,185,728
1,008
43,177,474
3,513,882
4,752,341
1,581,410
3.66%
2,877,940
6.67%
$0.55
53,335
965,778
887,594
3,368,178
557
35,177,574
1,145,039
1,529,186
1,918,137
5.45%
2,814,335
8.00%
$0.65
1,068,563
2,681,229
1,156,794
3,950,714
2,276
26,660,724
32,656
85,825
630,217
2.36%
967,925
3.63%
$0.90
112,766
135,355
402,277
1,549,211
936,668
25,000-49,999
519
18,115,102
194,929
331,946
516,682
2.85%
1,060,703
5.86%
$0.57
32,899
179,653
187,391
50,000-99,999
304
20,705,421
546,822
698,556
941,095
4.55%
1,490,239
7.20%
$0.60
112,063
(291,862)
398,613
881,240
100,000-249,999
196
29,063,221
1,551,606
2,030,222
1,347,089
4.64%
2,573,342
8.85%
$0.49
149,857
406,689
308,150
2,161,822
250,000-499,999
500,000 plus
East Total
Inland Empire Total
91
33,158,939
1,075,264
4,373,827
3,402,505
10.26%
6,368,185
19.21%
$0.43
561,020
2,955,844
1,147,020
4,560,853
103
86,086,693
4,259,404
18,663,710
6,376,340
7.41%
6,933,553
8.05%
$0.00
2,563,522
12,170,189
2,563,522
13,267,552
3,489
213,790,100
7,660,681
26,184,086
13,213,928
6.18%
19,393,947
9.07%
$0.55
3,532,127
15,555,868
5,006,973
23,357,346
7,977
504,069,917
20,321,034
33,624,311
22,701,265
4.50%
33,523,907
6.65%
$0.57
5,557,083
21,765,944
11,740,419
49,974,665
5,000-24,999
4,970
59,087,214
108,346
204,649
1,326,811
2.25%
2,135,951
3.61%
$0.74
153,849
77,611
835,551
3,282,537
25,000-49,999
1,195
41,698,079
701,351
1,023,157
1,330,234
3.19%
2,266,560
5.44%
$0.58
96,058
-50,752
597,108
2,380,027
50,000-99,999
721
49,816,345
981,970
1,072,690
1,537,240
3.09%
2,742,972
5.51%
$0.54
404,534
53,463
998,219
2,868,770
100,000-249,999
598
90,144,653
3,363,925
3,304,258
3,262,902
3.62%
6,281,465
6.97%
$0.54
666,120
1,708,425
2,172,278
8,096,448
250,000-499,999
297
106,581,490
3,228,787
5,140,046
6,585,989
6.18%
10,074,207
9.45%
$0.34
1,992,376
3,814,981
3,513,707
11,924,912
500,000 plus
196
156,742,136
11,936,655
22,879,511
8,658,089
5.52%
10,022,752
6.39%
$0.00
2,244,146
16,162,216
3,623,556
21,421,971
7,977
504,069,917
20,321,034
33,624,311
22,701,265
4.50%
33,523,907
6.65%
$0.57
5,557,083
21,765,944
11,740,419
49,974,665
115,755
Inland Empire Total
High Desert
Adelanto
133
3,184,293
0
0
209,576
6.58%
410,789
12.90%
$1.13
(90,976)
(111,871)
39,600
Apple Valley
75
2,505,490
0
1,847,530
46,648
1.86%
50,127
2.00%
$0.73
(576)
(1,501)
9,234
29,699
Barstow
52
1,037,057
0
0
137,245
13.23%
141,245
13.62%
$0.00
41,955
63,024
41,955
75,335
Hesperia
187
3,212,748
0
0
68,730
2.14%
333,432
10.38%
$0.00
(37,122)
355,593
17,200
491,455
Victorville
128
7,394,672
0
12,062,610
768,115
10.39%
1,537,615
20.79%
$0.64
241,781
(99,618)
256,959
430,718
High Desert Total
575
17,334,260
0
13,910,140
1,230,314
7.10%
2,473,208
14.27%
$0.88
155,062
205,627
364,948
1,142,962
85
1,434,672
0
0
33,895
2.36%
74,308
5.18%
$0.00
(9,145)
(5,745)
0
24,210
153
2,258,724
258,428
125,574
127,449
5.64%
246,367
10.91%
$0.85
44,320
(85,857)
71,489
151,181
Temecula Valley
Hemet
Lake Elsinore
Menifee
20
415,093
0
0
46,228
11.14%
70,376
16.95%
$0.00
1,457
(6,439)
4,321
31,101
Murrieta
233
3,775,266
0
0
53,730
1.42%
93,014
2.46%
$0.00
(6,582)
37,510
27,245
173,151
59
1,015,210
0
0
37,300
3.67%
89,395
8.81%
$0.75
(7,900)
11,600
14,400
40,940
330
10,724,334
0
250,391
222,811
2.08%
318,417
2.97%
$0.66
7,575
97,705
49,981
345,667
San Jacinto
Temecula
Wildomar
Temecula Valley Total
11
318,420
0
0
4,479
1.41%
4,479
1.41%
$0.00
(364)
16,841
4,115
42,384
891
19,941,719
258,428
375,965
525,892
2.64%
896,356
4.49%
$0.67
29,361
65,615
171,551
808,634
This survey consists of industrial buildings greater than 5,000 square feet. Lease rates are on a triple-net basis.
VOIT REAL ESTATE SERVICES
3
IE4Q16
Fourth Quarter 2016 MARKET REPORT
Inland Empire Industrial
Perfect Storm
Product Type
by Frank Geraci
EXECUTIVE VICE PRESIDENT, ONTARIO
MF G./ D IST.
2016 proved to be one of the best years in the Inland Empire’s 30-year history as an industrial
market in terms of absorption, rental rate growth, and price appreciation. If you had purchased
an industrial building in the Inland Empire from 2010–2012 it would have doubled in value by the
end of 2016. If you had purchased land during that same period, it would have tripled in value.
The cause of this positive momentum is a “perfect storm” that has been brewing for the last
five years. First, coming out of the recession, corporate America moved to cut occupancy costs
radically by consolidating multiple warehouses into one large and efficient building. These
buildings (500,000 square feet and up) only existed in the Inland Empire, where 30- to 50-acre
parcels of land could be found. Secondly, the advent of e-commerce spawned an entire new
silo of occupiers (think Amazon, Wayfair, and Hayneedle). More traditional retailers also saw
the need to incorporate e-commerce into their business (think Home Depot, Wal-Mart, Target,
and Nike). Thirdly, infill industrial markets like Orange County and Los Angeles have seen their
industrial bases shrink as older industrial buildings are being razed and converted into higher
use such as multifamily housing and mixed use. These industrial occupiers are being displaced
into the Inland Empire. Lastly, from 2009–2012 there was an unprecedented modernization to
several freeways and bridges. The 10, 210, 605, 215, 91 and 15 freeways were all modernized,
and speculative development increased as developers were able to “unlock” land that had been
somewhat inaccessible previously. Therefore, as other industrial submarkets had declining
bases and rising rental rates, the Inland Empire was able to accommodate new development
for both the displaced infill tenants and the purveyors of e-commerce as they grew. Amazon, for
example had no Southern California warehouse in 2011, yet today occupies 12 million square
feet of warehouse space in the Inland Empire alone!
2017 should see a repeat performance of 2016: absorption that keeps pace with supply, rents
that continue to rise, albeit at a more “normal” rate, and continued demand from companies
requiring the new technology only available in a modern building with 32'–36' ceiling heights,
185' truck court depths, and ample dock high positions to support the needs of both e-commerce
and imported goods. There are two caveats to a successful 2017 in the Inland Empire: a moderate
Fed position of gradual rate increases, and the Trump administration’s goal of “on-shoring”
manufacturing (which in theory could imply a diminished amount of imported goods). These
two factors will not have an effect for quite some time to come, so it is our conclusion that 2017
should be another banner year for industrial activity in the Inland Empire.
Manufacturing / Distribution / Warehouse
facilities with up to 29.9% office space.
Submarkets
WEST
Chino / Chino Hills, Fontana, Mira
Loma / Eastvale / Jurupa Valley, Montclair,
Ontario, Rancho Cucamonga, Upland
EAST
Banning, Beaumont, Bloomington,
Corona / Norco, Colton / Grand Terrace,
Moreno Valley, Perris, Redlands / Loma
Linda, Rialto, Riverside, San
Bernardino / Highland
HIGH D ESERT
Adelanto, Apple Valley, Barstow, Hesperia,
Victorville
TEMECUL A VALLEY
Hemet, Lake Elsinore, Menifee, Murrieta,
San Jacinto, Temecula, Wildomar
Please Contact Us
for Further Information
Tony Tran
Market Research Analyst
[email protected]
www.VoitCo.com
Anaheim, CA
714.978.7880
Inland Empire, CA
909.545.8000
Irvine, CA
949.851.5100
Los Angeles, CA
424.329.7500
San Diego, CA
858.453.0505
This survey consists of properties representing both single tenant and multi-tenant buildings. The lease rates are based on a triple-net basis. The information contained
in this report is gathered from sources that are deemed reliable, but no guarantees are made as to its accuracy. This information is for Voit Real Estate Services’ use
only and cannot legally be reproduced without prior written consent from the management of Voit Real Estate Services.
©2017 Voit Real Estate Services, Inc. License #01991785.