The Inland Empire (Riverside and San Bernardino Counties) industrial market saw vacancy rates rise significantly over the recession, with rates peaking at 9.4 percent in Q4 2008, according to a report from the Los Angeles Economic Development Corporation. Since then, the region has seen its industrial market tighten.
With the continued decline in vacancy rates, tighter markets have resulted in a steady increase of average asking lease rates, LAEDC reports. Robust demand for industrial property exists in the Inland Empire, driven by the expansion of e-commerce and increased port activity. The region has proved advantageous for logistics operations, and a considerable amount of land is available for future industrial projects to address the high levels of demand present in the market. As such, the outlook for the market continues to be positive.
The Inland Empire has developed into a logistics hub, and it continues to be a key market for growth, according to the report. Unishippers Global Logistics and UPS are examples of large 3PLs working to expand their activities in the region. Unishippers Global Logistics announced it was concentrating growth efforts in the Southern California five-county region, specifically in Orange, Riverside, and San Bernardino counties. The company earned in excess of $450 million in revenue in 2015, providing service to more than 50,000 customers. The firm estimates that approximately 10 percent of this revenue was attributable to activity in the Southern California area (including San Diego). Looking forward, the company expects to expand operations in Southern California by marketing 30 franchise territories based in the area.
UPS is a global 3PL that is expanding its footprint in the region. Currently, Ontario International Airport is home to a UPS® Regional Air Hub. The company flies 38 daily flights to and from the airport and completed construction in September 2015 of a UPS ground sorting facility, outfitted to accommodate tractor-trailers for the transference of goods for overland distribution. Goods are moved through this air hub, serving customers across the western portion of the United States – a region the size of almost one third the nation, including the states of Alaska and Hawaii.
Construction on the expansion of the existing sorting facility is already underway, the report states. When complete, the size of the building will have increased to almost 900,000 square feet and include automated sorting systems in both the original facility and the new expansion, doubling the hourly package processing capacity. To handle the new capacity at this location, the company plans to hire an additional 500 or more employees in the near future, including drivers and package handlers.
Demand for large-scale warehousing operations in the Inland Empire has been continually increasing, according to LAEDC. The Inland Empire, with its relatively cheaper real estate, more industrial-zoned land, a freeway network, and a built-in pool of potential workers, is now home to many such facilities built to meet this demand, each over 1 million square feet in size. Tilt-up construction continued to abound in 2015, adding more stock to its industrial real estate market. Warehouse facilities of 1 million square feet or more are currently planned and in various stages of construction in the Inland Empire cities of Redlands, Moreno Valley, and Beaumont.
There are benefits to building these massive warehouses on greenfield sites in the Inland Empire, says LAEDC. Increased efficiencies related to specialized facility design and reliability of new equipment introduce cost savings. The availability of large industrial sites is more prevalent in the Inland Empire, and the cost is significantly cheaper compared to its more urban and densely populated neighbors, Orange and Los Angeles counties. Finally, permitting and other required processes take less time, translating into shorter turnaround times to complete development.
These newly built massive warehouses are not only increasing their footprint on land, but also are literally reaching new heights, with technological advancements in the industry, specifically automation and robotics, allowing for the vertical stacking of inventories; new facilities are often about 40 feet high at minimum, reports LAEDC. Advancements in technology are increasing productivity, notably inventory-management systems, transportation-management systems, picking solutions, voice-activated interfaces, and even virtual-reality applications. This technological advancement has allowed for increases in speed and efficiency and decreases in costs.
Despite the increasing use of automation and robots in this arena, a certain level of employment will be guaranteed in the warehousing industry due to small-batch individual order picking, how capital intensive new technologies are, and concerns over cybersecurity that slow adoption of cloud-based management systems, the report states. As such, these facilities still provide significant employment opportunities for residents in the region today. However, employment prospects for tomorrow will dim as these hurdles are
overcome and automation of these jobs becomes a reality.
The report also points out that the City of Moreno Valley, located in Riverside County, has become home to numerous large-scale warehouse facilities over the past several years, beginning with a distribution center for Skechers in late 2011 that measures 1.8 million square feet. In more recent years, a 1.25-million-square-foot fulfillment center was erected for Amazon and opened in 2014, and an 825,000-square-foot regional headquarters and distribution facility for the grocer Aldi opened early 2016. Currently under construction is a 1.6-million-square-foot distribution center for Deckers Outdoor, another footwear company.
In late 2015, the Moreno Valley City Council approved the World Logistics Center project, a 40-million- square-foot mega-warehouse located on 3,800 acres in the east end of the city, according to the report. Once the development is constructed, it will be one of the largest warehouse complexes nationwide, able to house close to 700 football fields inside its walls. Employment with the logistics center is estimated at around 20,000 jobs.