Inland Empire industrial rents have continued to spike due to the limited amount of available space in the marketplace. Much of the new product being built in this market are very large industrial big-box opportunities in the 500,000-square-foot to 1 million-square-foot range, leaving a limited number of small to mid-size industrial opportunities for those users.
Because of the scarcity of smaller industrial buildings in this market, rents for these buildings have increased 10 percent to 20 percent over the last 12 months, and landlords continue to push the rents because demand is extremely high, Barry Saywitz, president of The Saywitz Company, tells SoCal Real Estate. “You’re at rental rates that are basically as high as they’ve ever been, if not higher. All indications are that, at least in the short run, there will continue to be increased pressure on upward rents.”
Simple supply and demand and very low vacancy rates across the board are maintaining the upward pressure. In the 10,000-square-foot to 30,000-square-foot range, users don’t have a lot of options, and prices are running up significantly. Since this is smaller space, the increase is not as big as it would be for larger buildings, so tenants end up paying the increased rent, says Saywitz. “People have to do it. The only way to get cheaper rent is to go farther east or farther away.”
Since so much industrial business revolves around the Ontario Airport area, the closer tenants get to the airport, the more expensive the space is. While there is development where land prices are cheaper farther east – in areas like Redlands, Moreno Valley, and Beaumont – most tenants would rather be closer in.
Also, e-commerce has changed development trends from the last cycle, when more small owner/user buildings were built and sold. “This is not happening as much because the new wave of warehouse requirements is for bigger buildings,” says Saywitz. This means, smaller buildings are not being developed. And with 3PL companies willing to pay high for space, rents continue to rise for large buildings as well.
Also, with industrial vacancy in L.A. as tight as a drum and not much availability on the other coastal markets, rents in the Inland Empire are being driven up and staying just a notch below L.A., says Saywitz. “As the coastal markets continue to push up, the IE goes along for the ride. If warehouse space rents at LAX are sky high, then the IE doesn’t look so bad, so tenants have to pay it.”