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Inland Empire’s East Valley Industrial Market Saw Strong Activity and Absorption in 2nd Quarter of 2020

7/09/20

This Second Quarter Industrial Market Summary for the Inland Empire East Valley region was provided by Lee & Associates Riverside

The second quarter of 2020 for the Inland Empire East Valley region saw strong activity and gross absorption even given the current “new normal” as the economy begins to re-open. Gross absorption for 2019 totaled 21.2 msf, continuing on the heels of the record-breaking absorption performance in 2018 of 27.3 msf, and historically in 2017 of 16.9 msf and 2016 of 19.3 msf. Gross activity in the second quarter was 8.1 msf, with investment purchases and lease renewals accounting for 38.8% of the total. Second-quarter 2020’s absorption figures were 4.9 msf, compared to 9.2 msf during the same period last year. While absorption is below that of the previous year, the industrial market is holding strong.

The start of the 1st quarter in 2020 was a continuation of consistently strong activity, good absorption, and low vacancy in all size sectors much like 2019. Development projects continued to plow forward, and owner-users and investors continued to take advantage of record-low interest rates, absorbing properties in all size ranges. Currently, at the end of the second quarter, investors are looking for below-market deals and are searching for areas of distress, but so far, they have been unsuccessful. The Fed is unlikely to raise interest rates so buyers willing to move forward are getting advantageous financing terms.

Most manufacturing and distribution operations had to immediately change the way they do business, which temporarily caused many commercial real estate transactions to be put on hold as owner-users and investors regrouped to see what was next. This “wait and see” approach has continued through the 2nd quarter of 2020. Nonetheless, the Inland Empire industrial sector has been the least impacted commercial sector as companies have quickly rallied and some are thriving as they take advantage of current needs, and are actively seeking new warehousing and distribution facilities.

E-commerce and its demand for supply-chain storage space are expected to grow more in the last half of 2020 as well as third party logistics and packaging companies. The switch from in-person to shopping online is expected to stick, which bodes well for the big-box industrial sector.

Despite the unknowns related to when we will “flatten the curve” as a country, there’s room for optimism in the Inland Empire industrial sector because interest rates should remain low, and there is plenty of pent-up demand to drive a bounce back as many economists expect in the second half of 2020.

Vacancy rates decreased in the second quarter to 3.14%. The remainder of 2020 is projected to show an overall stable vacancy rate, although it may rise given a projected increase in new supply and the looming impacts of the current pandemic. Nonetheless, large big-box distribution space continues to be in high demand with many companies continuing to move east to take advantage of lower sale prices and lease rates as compared to areas closer to the Ports of Los Angeles and Long Beach.

The base for the second quarter represented 11.7 msf under construction, with 68.1% of the total in the 200,000+ sf range, a 8.1% increase over the previous quarter. There were five new buildings that completed construction in the East Valley in the second quarter encompassing 1.54 msf, with 51 new buildings projected to be completed in the third quarter of 2020 totaling 6.9 msf.

Average asking sales prices per SF increased in the second quarter to $153.98/sf. Asking GRS rates increased to $0.77/sf over the previous quarter as did asking NNN rates which averaged $0.75/sf. Actual NNN rates increased over the previous quarter, however actual GRS rates declined slightly. Actual sale prices per sf at $129.92/sf also declined over the previous quarter.

Lee & Associates Riverside president, Dwight Hotchkiss, stated that “Despite the disruptions endured during the 2nd quarter, the Inland Empire industrial market continues to show strong performance. We expect this to continue as the demand for industrial grows with the ever growing demand to purchase on-line versus in brick and mortar.”






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