Q2 2022 Industrial Market Outlook – Inland Empire
Sustained demand for warehouse distribution space is keeping developers active in the market which has resulted in more industrial development projects in the Inland Empire to keep pace with economic growth and the relentless demand for additional warehouse distribution space across the region from ecommerce. Industrial space under construction jumped 9.4 percent from the prior quarter, up 50.3 percent compared to last year to more than 33.5 million square feet. With completed construction totaling close to 11.1 million square feet and net absorption at 11 million square feet in the first half of 2022, the increased supply of industrial development is scarcely keeping pace with persistent demand. The Inland Empire, over the past five quarters, averaged approximately 5 million square feet of completed construction added to the market while net absorption averaged 7.4 million square feet. The shortage of warehouse distribution space in the Inland Empire’s industrial market continued in the second half of 2022. The vacancy rate remained at a record low of 1.3 percent, steady from the previous quarter and 160 basis points below the second quarter of 2021. The market’s strength was extraordinary in the first half of 2022, with virtually all newly completed warehouse distribution space continuing to get leased. The average asking rent increased 11.8 percent from the prior quarter to $0.95 triple net, up 28.4 percent from the second quarter of 2021.
TRENDS TO WATCH
As the supply chain disruptions caused by the COVID-19 shutdown dissipate, demand from ecommerce to feed distribution networks will cause developers ease construction of warehouse distribution facilities. In the West Inland Empire Amazon’s 4.06 million square foot facility, currently under construction, remains the largest facility under construction in Southern California and will become the largest warehouse in Amazon’s logistics network. With land for development becoming increasingly scarce in the West IE because of projects like Amazon’s, development is spreading eastward. Inland Empire’s East industrial submarket has become the tightest in the region. Vacant industrial space in the East IE fell 75.6 percent from last year to a historic low of 0.8 percent. Rent in the East IE shot up 82.9 percent from last year to $1.50 per square foot per month – the highest in the region. In the East, industrial space under construction soared 55.0 percent from the second quarter of 2021. As demand for well-located state of the art warehouse distribution space continues, the East Inland Empire will compete with the West IE as a distribution hub for the largest, newest, big-box industrial buildings in Southern California.