DCG Fulfillment, a third-party logistics provider, signed a 771,839-square-foot lease at 1300 California Street in Redlands, California, during Q2, one of the largest leases of the quarter in the IE market. | Courtesy a representative of Newmark Knight Frank

New Buildings Drive Occupancy Gains for IE Industrial

Carrie Rossenfeld Industrial

Nearly 70 percent of the Inland Empire’s (IE’s) industrial occupancy gains in Q2 came from new buildings delivered over the last 18 months, according to a report from Newmark Knight Frank (NKF). Net absorption in the market remained strong during the quarter at 7 million square feet.

The quarter’s top absorption gains in the region included move-ins from UPS (1 million square feet), DCG Fulfillment (771,839 square feet) — as SoCal Real Estate reported in April — and Harbor Freight Tools (601,810 square feet), NKF reports. Two of the three move-ins were in newly constructed buildings.

Industrial vacancy in the IE has remained below 5 percent for five consecutive years, and new construction is often the only answer for tenants in search of modern space, NKF says. Vacancy is so tight that as one tenant leaves, another is right behind. For example, Burlington Coat Factory will soon vacate 446,000 square feet in a facility that Mars Petcare has already leased.

More than 9 million square feet of new construction is set to deliver in the market in Q3, and of this, 25 percent is preleased, with more leasing activity expected by the time of delivery. This is keeping vacancy in check and propelling rent growth, according to NKF.

The report also says the average industrial asking rent has reached a new high in the IE, up 15.4 percent from a year ago. Short-term leases of three years or fewer are nonexistent in today’s environment.

Southern California’s seaports showed no signs of a slowdown, as import volume reached 3.4 million TEUs in the first five months of 2018, a 4.3 percent increase over the same period last year. If current activity persists, 2018 may top 2017 as the busiest year on record, NKF predicts.