Update on the factors driving Industrial Commercial Real Estate in the Inland Empire of Southern California. Excerpt from Western Real Estate written by Nathan Bragg, Commercial Real Estate Broker, Director RE/MAX Time Commercial Real Estate Division

1. MARKET HIGHLIGHT: INLAND EMPIRE
20 • December 2015 • Western Real Estate Business www.REBusinessOnline.com
The Inland Empire region is cur-
rently the No. 1 market in the United
States for industrial construction, with
more than 17.5 million square feet cur-
rently under construction in the third
quarter of 2015.
Two key market factors are driving
the growth to the Inland Empire.
The first being that demand for new
and larger distribution warehouses is
highly fueled by shifts in consumer
buying patterns, which are moving
away from the traditional brick-and-
mortar point of sale to online purchas-
es. Online orders require mega ware-
housing and automated fulfillment
centers. This shift requires inventory
storage away from local retailers to
large centralized distribution centers.
The second is the limited supply of
vacant land to build. The availability
of land to build is almost non-existent
in Los Angeles and Orange counties in
areas that are accessible to the ports.
In comparison, the Inland Empire has
abundant land at lower prices with ex-
cellent freeway access and infrastruc-
ture.
The Inland Empire is situated in
the center of a 1.85-billion-square-foot
warehousing and distribution network
that serves as the major distribution
center for the Western United States.
About 25 percent of all imported cargo
enters the Port of Los Angeles annu-
ally. The IE is strategically located to
fill the need for new warehouse space
development as demand increases.
Who’s Funding the Growth?
With the shift in demand driven
by strong market forces, money has
flowed to where it is being treated the
best and can obtain a stable rate of
return. This money flow is currently
directed to distribution warehouse
space as large foreign and institution-
al investors, as well as private equity
groups, buy and partner with builders
on a pre-leased and speculative basis.
This space is mostly being leased by
logistics companies and Fortune 1000
companies that need the space for
their distribution hubs. This invest-
ment will continue to move east as it’s
fueled by the low cost of land, econo-
mies of scale and favorable market
conditions.
Key Market Trends
Positive absorption rates, low inven-
tory, rising sales prices and compress-
ing cap rates typify the market.
Vacancy rates remain at record-low
levels at 5.2 percent for warehouse.
Average asking base lease rates for
warehouse and flex space is up to
$0.47 per square foot, per month,
though this varies based on building
size and location. The average size of
a new building under construction is
more than 366,000 square feet, with
developments of more than 1 million
square feet well underway.
Some of the key tenant moves with-
in the Inland Empire’s industrial mar-
ket include:
• Walmart moving into 1,445,200
square feet at Majestic Chino Gateway
in Chino
• Aldi absorbing 800,430 square feet
at 12661Aldi Place in Moreno Valley
• APL Logistics nabbing 714,773
square feet at Redlands Distribution
Center Building 14 in Redlands
The top three projects under con-
struction include:
• Lewis Community Developers
building the 1.1-million-square-foot
Medline in Rialto
• Howard Construction developing
the 1.1-million-square-foot Perris
Valley Logistics Center in Perris
• Hillwood Development Company
constructing the 1.1-million-square-
foot Alliance California Gateway
South Building #3 in San Bernardino
Nathan Bragg, Managing Director, RE/MAX
Time Commercial Division
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MAYOR PAUL S. LEON I MAYOR PRO TEM DEBRA DORST-PORADA
COUNCIL MEMBERS I ALAN D. WAPNER, JIM W. BOWMAN AND PAUL VINCENT AVILA
Smith notes the owners hope to attract quality, labor-intensive tenants that
will further enhance the neighborhood roster.
“This submarket seems to attract a better quality of tenants,” he notes.
“We’ll want them to have substantial financials because we’ll probably put
a fair amount of tenant improvements into the building. It will be a more
labor-intensive space due to the 36-foot clear height [at Meridian Distribu-
tion Center II], which has become the new standard for 500,000-square-foot
buildings.”
High-quality tenants should feel right at home in the neighborhood, with
counterparts like Sysco Corp., Yucaipa Company, Kia Motors, Walgreens and
McLane Food Services nearby. The new buildings will be leased by Phil Lom-
bardo and Chuck Belden of Cushman Wakefield.
Smith also believes this corridor will continue to do well with labor-in-
tensive tenants due to its proximity to highways and a general increase in
ecommerce needs.
“There are lots of ecommerce companies coming to this area,” he says. “A
lot of companies are spinoffs of Amazon and Walmart that serve as suppliers
for these entities. The demand from the ports of Long Beach and Los Angeles
is really driving the need for buildings with more than 500,000 square feet in
the Inland Empire East.”
Newcastle is also working on smaller-scale projects, including the
149,847-square-foot Knox Logistics Center in Moreno Valley, and two proj-
ects in the Inland Empire West, including the 100,360-square-foot Chino Hills
Commerce Center in Chino Hills and a 102,440-square-foot industrial project
in Ontario.
NAIOP’s bus tour featured other notable projects, such as JP Morgan/
Sares Regis Group’s 3-million-square-foot Meredith International Centre in
Ontario; Watson Land Company’s 5.1-million-square-foot Watson Industrial
Park in Chino; and Kearny Real Estate Company’s 1.1-million-square-foot
Modular Logistics Center in Moreno Valley. — Nellie Day
Goodman Logistics Center Rancho
Cucamonga has added more than
1 million square feet of warehouse
space to the area.
Source: Nathan Bragg
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