The Inland Empire’s Industrial Strength Doesn’t Wane

Since the beginning of the year, the Inland Empire’s industrial sector has experienced significant development pipeline growth, attracting considerable attention from investors and developers. As of May, the market’s underway pipeline stood at roughly 4.5 million square feet, recording a tenfold increase compared to last year’s same period, CommercialEdge data shows.

Additionally, 45 properties came online year-to-date as of May, totaling almost 17.5 million square feet. This is more than double the 8.6 million square feet delivered during the same timeframe in 2023.

Despite several positive signs, the Inland Empire faces its challenges, too. The metro’s vacancy rate rose to 6.6 percent in May, marking a 440-basis-point increase year-over-year.

Completions more than double year-over-year

Year-to-date as of May, the Inland Empire’s industrial sector saw almost 17.5 million square feet of space coming online across 45 facilities. This accounts for 2.6 percent of the market’s total stock, way above the 0.9 percent national average. Completions in the metro more than doubled year-over-year.

Compared to other peer markets, the metro outpaced Phoenix (13.6 million square feet), Chicago (8.2 million square feet) and Atlanta (4.1 million square feet), and trailed behind Dallas (17.9 million square feet).

At the beginning of the year, Prologis completed Building 2 of Merrill Commerce Center, a more than 4 million-square-foot facility in Ontario, Calif. The 73-acre property features 68 dock-high loading doors and is fully leased to Amazon, CommercialEdge data shows.

The company also completed two more buildings within the same campus, which added about 2.4 million square feet to its inventory. According to their plans, the development will incorporate about 8.5 million square feet at full buildout, spread across some 376 acres.

More industrial space in the works

At the end of May, the Inland Empire’s under construction pipeline stood at almost 4.5 million square feet. With 25 properties under development, the metro had 0.7 percent of total stock underway. The market was far behind peer metros, such as Chicago (1.0 percent), Atlanta (1.8 percent) and Dallas (1.8 percent). Phoenix led nationally, with about 38.7 million square feet underway, accounting for 9.8 percent of existing stock.

However, the metro’s share of industrial space in the under-construction and planning phases reached 7.4 percent of existing stock, surpassing Dallas (6.7 percent), the Bay Area (5.5 percent) and Atlanta (3.3 percent).

In March, a joint venture between CBRE Investment Management and Hillwood Investment Properties obtained a $756 million financing package for the construction of Speedway Commerce Center, a 6.6 million-square-foot logistics project. The first phase of the development will consist of two buildings with 40-foot clear heights, which are expected to be delivered in early 2025.

IDI Logistics is also active in the market with the construction of the second building within Perris Logistics Center North, a 2 million-square-foot industrial park in Perris, Calif. The developer broke ground on the 1 million-square-foot facility in April and plans to open it in the second quarter of next year.

Transaction activity remains strong

In terms of sales, the Inland Empire’s industrial sector registered $709 million in transaction volume year-to-date through May, ranking amongst the top 10 markets nationally. Assets traded on average for $216 per square foot, considerably above the $142 average. However, this marks an almost $53 decrease compared to 2023’s same timeframe, when facilities changed hands for roughly $269 per square foot.

Nationally, the Bay Area ($582 psf), Los Angeles ($313 psf) and New Jersey ($272 psf) commanded the highest sale prices per square foot, while Dallas ($152 psf), Chicago ($91 psf) and Atlanta ($112 psf) were at the opposite pole.

In May, Stockbridge acquired a two-property portfolio totaling 540,478 square feet from Principal Asset Management. The fully leased assets traded for $142.3 million—or about $263 per square foot.

A month earlier, EQT Exeter purchased the 819,004-square-foot Commerce Way Distribution Center for $197 million, or nearly $241 per square foot. Manulife Investment Management sold the Fontana, Calif., asset.

Highest rent growth nationally

Despite a sustained interest in the local industrial market, the metro’s vacancy rate increased to 6.6 percent, a 440-basis-point increase year-over-year. This can be attributed to a rise in the number of deliveries. Additionally, the market saw vacancy 100 basis points higher than the national average.

In the first quarter of last year, NFI Industries renewed its full-building lease at Perris Distribution Center in Perris, Calif. Ares Management owns the 864,000-square-foot warehouse completed in 2017.

In February, the average asking rate in the Inland Empire stood at $10.19 per square foot. This marked a 12.6 percent increase year-over-year, the highest rent growth across the U.S. Notably, Orange County ($15.49 psf) commanded the highest asking rate nationally, while Phoenix ($8.95 psf), Atlanta ($5.76 psf) and Dallas-Fort Worth ($5.95 psf) were at the opposite end of the spectrum. The national average during the same month was $8.00, a 7.5 percent growth over the last 12 months.

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