The third quarter of 2018 posted strong activity and gross absorption for the Inland Empire’s East Valley industrial market, according to a report released by a representative of Lee & Associates. The release says the report was prepared by Caroline Payan, director of marketing and research of Lee’s Riverside office.
Among manufacturing/distribution buildings for the East Valley market, gross activity in the third quarter was 14.1 million square feet, with investment purchases and lease renewals accounting for 55.8 percent of the total, according to the statement. The gross absorption for 2017 in this submarket totaled 16.9 million square feet, continuing 2016’s strong absorption performances of 19.3 million square feet and 2015’s of 15.3 million square feet.
The report, also found that the Inland Empire experienced continued tightening in the industrial market, with asking lease rates and prices continuing to climb, the release says.
“Although owner/user purchase activity seemed to slow ever-so slightly, there is still a great deal of pent-up demand from tenants, owner/users, and investors, many with 1031 exchange money to place,” the statement says. “High asking sales prices, though, seem to be scaring off all but the most bullish buyers. Leasing activity remains strong as distribution tenants and small business continue to take advantage of robust consumer spending.”
The statement also says with gross absorption expected to hold steady throughout the remainder of 2018, year-to-date gross absorption of 18.9 million square feet has already outpaced the previous year’s total gross absorption of 16.9 million square feet. However, according to the report, third-quarter 2018’s absorption figures were 6.2 million square feet, down from 6.4 million square feet during the same period last year.
The report also finds that vacancy rates increased slightly in the third quarter to 5.29 percent. Lee’s rep says the remainder of 2018 is projected to show an overall stable vacancy rate, although it may rise slightly given a projected increase in new supply.
Bulk distribution space continues to be in high demand, with many companies still moving east of the L.A./Long Beach ports to capitalize on lower asking rates and sales prices, according to the report. Vacancy rates in the big-box segment and small buildings under 50,000 square feet will most likely rise in the short term as new developments are delivered throughout the remainder of 2018, it says.
From a construction standpoint, the base for the third quarter represented 15 million square feet under construction, with 88.9 percent of the total in the 200,000-plus-square-foot range, a 13.4 decrease over the previous quarter, the report says. There were 19 buildings that completed construction in the East Valley in the third quarter, with 34 new buildings projected to be completed in the fourth quarter of 2018, according to the statement. Development of new industrial buildings will continue on projects already in the pipeline over the next year; however, after that new development is projected to slow down, Lee’s report says.
Prices continue to rise, with average asking sales prices per square foot having increased in the third quarter and the supply of buildings offered for sale remaining limited. Actual sale prices dropped slightly in the third quarter, mainly due to the quality of product sold, the release says.
Dwight Hotchkiss, president of Lee & Associates Riverside — who, as SoCal Real Estate recently reported, was recently named president of the three offices in the Inland Empire — is quoted in the release as saying that “although new developments continue to move forward, they cannot outpace demand, and in most cases, new buildings are being listed at never-before-seen high prices that are accepted by desperate users or investors searching to park 1031 down-leg funds.”