The Industrial Strength of the Inland Empire

The Inland Empire’s industrial market has been a bellwether for the global industrial market, with investors and developers looking to the state of the sector in the counties of Riverside and San Bernardino for insights. Below, we’ve compiled CommercialEdge data to quickly run through how 2023 went for the bustling industrial market.

Although one of the largest contemporary industrial markets, the area has seen sustained construction activity, solid vacancy in the aftermath of a changing supply chain and surging new rental rates. The slowing investment market has had its effects in industrial sales as well, with the Inland Empire total volume being significantly impacted.

Developers still very much keen on the Inland Empire

As of December, 19.4 million square feet of industrial space was under construction within the Inland Empire market, representing 3.0 percent of total stock—slightly above the national average of 2.4 percent. Among peer markets, only Phoenix (11.1 percent) and Dallas (3.6 percent) had larger pipelines, while Indianapolis (2.0 percent) and Atlanta (1.2 percent) were at the other end of the spectrum.

Three of the five largest industrial buildings that were underway at the end of 2023 in the metro are part of Prologis’ Merrill Commerce Center in Ontario, Calif. They all broke ground in 2022 and are slated for delivery this year. The campus includes Amazon’s 4.1 million-square-foot mega-warehouse at 8900 Merrill Ave., where the retailer opened its largest industrial facility in the country earlier this year.

In the first quarter of 2023, Hillwood Investment Properties and CBRE Investment Management purchased 364 acres of land in Fontana, Calif., for $559 million. The partners are planning to construct Speedway Commerce Center, a 364-acre, 6.6 million-square-foot multi-logistics campus.

In July, CapRock Partners announced plans for CapRock Global Logistics, a roughly 500,000-square-foot warehouse within the World Logistics Center master-planned industrial park in Moreno Valley, Calif. The project is slated to be LEED certified.

In 2023, a total of 34 properties broke ground within the Inland Empire market, accounting for 0.9 percent of total tock—lower than the U.S. average of 1.3 percent. Construction starts were significantly lagging those in Phoenix, where 22.8 million square feet of new industrial space started to rise last year, representing 6.0 percent of total stock.

Construction activity continues to stay high

Birtcher Development was active last year in the Inland Empire market. In July, the company started construction on Birtcher Logistics Center Rialto, a 492,410-square-foot facility in Rialto, Calif. A month prior, Birtcher had obtained a $49.2 million construction loan for another industrial facility in Fontana. The 330,048-square-foot industrial facility is set to come online in the first quarter of 2024.

Last year, 26.6 million square feet of industrial space came online in Inland Empire. The 102 properties that were delivered represented 3.8 percent of total inventory in the metro. Across peer markets, Dallas had the most space delivered (59.3 million square feet), followed by Phoenix (32.5 million square feet).

Last year, Bridge Industrial delivered Bridge Point Rancho Cucamonga I— the largest warehouse to come online in 2023 in the market. Comprising more than 1.4 million square feet in Rancho Cucamonga, Calif., the project received a $150 million construction loan from Wells Fargo Bank in 2022. In 2023, Bridge Industrial also completed the neighboring Bridge Point Rancho Cucamonga II, a smaller, 752,500-square-foot industrial facility.

Trammell Crow Co. and Washington Capital Management completed the second phase of Columbia Business Park in Riverside, Calif., in March. The partnership began to develop the 374,000-square-foot facility on a speculative basis and found a tenant during the process.

In June, CapRock Partners completed the construction of two separate industrial properties in Norco, Calif., totaling roughly 1.1 million square feet. The company delivered the first phase Palomino Ranch Business Park, comprising eight buildings, as well as Saddle Ranch South, which encompasses three buildings.

Sales follow national trend in downward movement

The Inland Empire’s transaction activity largely followed national patterns in 2023, with activity down across the nation, to $52.1 billion. That’s roughly half of what it had been in 2022, as capital availability, rising interest rates throughout the year, and overall uncertainty dented investment volumes.

Riverside and San Bernardino counties saw roughly $3.9 billion in industrial asset sales last year, barely trailing Los Angeles, where sales came in right under $4 billion. The two markets are both anchored by the ports of Los Angeles and Long Beach, with the two propped up by the restoring of the global supply chain. Jointly, the SoCal markets accounted for roughly 17 percent of the national sales volume.

Despite a resurgence in freighting in the nearby ports, transactions had a steady decline in 2023’s third and fourth quarters, when total sales reached $750 million, accounting for less than half of Q2’s $1.7 billion total. Overall, 102 Inland Empire industrial assets changed hands in 2023, totaling more than 16 million square feet of space.

The Inland Empire’s average price per square-foot was $248, almost double the $129 national average. The market’s average price was only outpaced by gateway-neighboring logistics markets like Bay Area ($334 psf), Los Angeles ($314 psf) and Orange County ($296).

Investment was driven by companies expanding in the market, like Westcore’s acquisition of a California portfolio, that increased its Inland Empire holdings by 1.5 million square feet.  Meanwhile, GCP paid $507 million for assets in the market, increasing its foothold in the two counties by roughly 1.1 million square feet.

Industrial vacancy just underperforms U.S.

Vacancy rates in the Inland Empire ended the year at 5.0 percent, 40 basis points higher than the national figure, as the market stayed relatively tight. With the market’s construction activity still healthy, there’s still solid interest in the local industrial market. In fact, leases like BDK Logistics’ full lease of an industrial asset in Corona, Calif., was indicative of the market’s rising in-place rental rates throughout 2023, with Class A assets driving growth.

Vacancy rates in nearby Los Angeles were just 10 basis points higher, while markets like Kansas City (2.7 percent), Phoenix (3.2 percent), Charlotte (3.5 percent) and Dallas-Fort Worth (4.3 percent) were well below the national figure. These markets also have the largest under construction and planned pipelines as a percentage of existing stock in the nation, highlighting a quick response from developers. 

Industrial space in the counties of Riverside and San Bernardino is still the cheapest among major SoCal markets, ending 2023 with an average rent of $9.59 per square-foot. Meanwhile Orange County ($14.99 psf) and Los Angeles ($13.9 psf) led the nation in average industrial rent.