The Inland Empire’s (IE) West submarket boasts the lowest vacancy in the IE region at 3.16 percent, according to a Q1 2018 report from Voit Real Estate Services. The historic vacancy rate for the IE over the past 19 years is approximately 7.05 percent, demonstrating just how much this submarket has tightened up.
While Los Angeles and Orange County have some of the highest-priced industrial property and are two of the tightest real estate markets in the country, the IE is not far behind these markets, Voit reports. Commercial real estate tenants and purchasers are grabbing what they can, as near as they can to the Los Angeles/Long Beach ports. Market demand has continued to grow in the IE, with increased tenant activity from small/mid–sized tenants and the rebirth of the 100,000-square-foot tenant. Warehouse speculative construction will continue as retailers are gobbling up massive blocks of space, says Voit. Market fundamentals will be tested when the bulk of this speculative construction starts to deliver in mid-2018.
What is drawing tenants to the IE? According to Voit, companies find efficient infrastructure, lower lease rates, modern amenities and a highly skilled workforce there. The vacancy rate in the region decreased in the first quarter to 4.79 percent, down from the fourth quarter of 2017 rate of 5.24 percent. From a historical perspective, the first quarter vacancy rate was lower than the 5.08 percent average recorded since the beginning of the first quarter of 2007.
Juan Guiterrez, SVP of Voit and a partner in the firm’s Inland Empire office, says, “The Inland Empire is showing no sign of a slowdown. Rents and sales prices are at all-time highs, cap rates are at all-time lows, there is a limited supply of available buildings, and the market is now extremely land constrained.”
Guiterrez adds that over the past 12 months, the IE region has seen a 15 percent increase in average lease rates, and due to lack of availability, it is expected that the market will experience similar growth in the next 12 months. “Recent cap rates have been as low as below 4 percent in the Western Inland Empire and approximately 4.5% in the Eastern Inland Empire. Competition for quality assets among institutional investors is expected to continue, which will keep downward pressure on cap rates.”