Q3 2022 Industrial Market Outlook – Inland Empire

 

 

MARKET OUTLOOK

In the third quarter of 2022, the Inland Empire industrial market continued to experience the effects of sorting out the supply chain challenges caused by pandemic. As the economy roared, rent continued rising as the demand for warehouse space outstripped supply across the region.  The average asking rent increased 21 cents from the prior quarter to $1.17 triple net, up 53.9 percent from the third quarter of 2021. The vacancy rate remained at a record low of 1.4 percent, up 20 basis points from the previous and down 40 basis points from the third quarter of 2021. The market’s strength was extraordinary over the past year, vacancy moved 10.7 percentage points below its all-time peak, which hit in the third quarter of 2009 during the Great Recession. The exponential growth in demand for e-commerce due to COVID-19 has resulted in the huge development of industrial space in the Inland Empire.

Soaring demand, for warehouse and distribution space, has kept developers busy. Completed construction added more than 2.4 million square feet to the market in the third quarter. Since the third quarter of 2021, close to 19.4 million square feet of industrial space was completed. With completed construction totaling close 13.5 million square feet and net absorption of more than 12.3 million square feet year to date, the supply of new construction has appeared to have caught up with demand this quarter.

TRENDS TO WATCH

Developers continued building in the East Inland Empire as demand for warehouse and distribution space remains hot. The Inland Empire’s East industrial submarket grew out of the necessity for large swaths of land to build mega distribution centers to serve Southern California’s fast-growing logistics needs. This quarter in the East industrial space under construction was up 60.9 percent, with 8,274,926 million square feet of completed industrial space added to the market since Q3 2021. With net absorption of more than 4.9 million square feet year to date and completed construction totaling approximately 4.5 million square feet, the supply of new construction almost caught up with demand in the East Inland Empire this quarter. Demand for well-located state of the art warehouse distribution space is expected to continue, with the East Inland Empire remaining a magnet for the largest, newest, big-box industrial buildings in Southern California.

The outlook for the Inland Empire’s industrial market points to demand remaining strong for warehouse and distribution space. The region’s desirability as a distribution hub along the path of the ports of Los Angeles and Long Beach will further fuel demand for warehouse and distribution space.