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January 29, 2023
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Inland Empire East Valley Industrial Market Enjoyed Continued Momentum in Fourth Quarter 2022

1/10/23

This report was provided by real estate services firm Lee & Associates

The Inland Empire East Valley industrial sector continued its steady momentum throughout the fourth quarter of 2022. Gross absorption for 2022 totaled 20.4 msf, continuing on the heels of the record-breaking absorption performances in 2021 of 25.3 msf, 2020 of 22.7 msf, 2019 of 21.2 msf and 2018 of 27.3 msf. Gross activity in the fourth quarter of 2022 was 9.3 msf, with investment purchases and lease renewals accounting for 62.7% of the total. Fourth quarter 2022’s absorption figures were 3.5 msf, down from the 7.7 msf of absorption during the same period last year.

This year was one of the most prolific in history with record prices, lease rates and deal flow. With many varying-size developments being delivered in the fourth quarter of 2022, vacancy rates seemed to have leveled off in most submarkets. Still vacancy is below average and functional industrial product is hard to acquire.

Despite this record year, there is some evidence of a gradual slowdown as overall deals dipped slightly in the fourth quarter. Many economists and commercial real estate professionals have cautioned that 2023 might be a bit slower in the industrial sector as the Fed continues its attack on inflation through continued interest rate hikes. Nonetheless, industrial demand remains strong, and investors are putting their money where their mouth is by moving forward with numerous industrial developments all over the East Valley. Many feel the industrial sector will pick up where it left off in the second half of 2023 as inflation and interest rates stabilize.

Vacancy rates remained at record low levels in the fourth quarter of 2022 at 0.77%. Into 2023, the vacancy rate is projected rise slightly due to a large amount of new deliveries, however it is expected to remain stable, despite the projected increase in new supply. Warehouse and distribution space continues to be in high demand and new construction is expected to be absorbed quickly.

The base for the fourth quarter of 2022 represented 17.9 msf under construction, with 93.7% of the total in the 100k sf+ range, a 9.0% decrease over the previous quarter. There were 18 new buildings that completed construction in the East Valley in the fourth quarter encompassing 3.4 msf, with 34 new buildings projected to be completed in the first quarter of 2023 totaling 9.5 msf.

Average asking sales prices per SF increased in the fourth quarter to $272.99/sf. Asking GRS rates increased over the previous quarter to $1.31/sf as did asking NNN rates at $1.42/sf. Actual GRS rates increased over the previous quarter averaging $1.31/sf. Actual NNN rates also increased over the previous quarter to $1.26/sf. Actual sale prices per sf decreased to $250.68/sf compared to the previous quarter.

Lee & Associates Riverside president, Dwight Hotchkiss, stated that “The year 2022 started out with a bang, continuing on the momentum of 2021. This past year, however, we saw headwinds from most notably interest rate increases and inflation. Despite these obstacles, 2022 culminated as one of the strongest ever in terms of absorption, record sale prices and lease rates. As we move into 2023, we remain optimistic about the Inland Empire East Valley industrial market. The market’s ability to continue steady leasing and sale activity, despite current economic factors, will be driven by the many owner/user buyers and tenants looking for quality industrial space who need to be near the Ports of LA/Long Beach.”




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