The Inland Empire’s Industrial Strength Doesn’t Wane

Since the beginning of the year, the Inland Empire’s industrial sector has experienced significant development pipeline growth, attracting considerable attention from investors and developers. As of May, the market had roughly 4.5 million square feet underway, recording a tenfold increase compared to the same period of last year, CommercialEdge data shows.

Additionally, 45 properties came online year-to-date as of May, totaling almost 17.5 million square feet. This is more than double the 8.6 million square feet delivered during the same timeframe in 2023.

Despite several positive signs, the Inland Empire is facing its challenges, too. The metro’s vacancy rate rose to 6.6 percent in May, marking a 440-basis-point increase over the year.

Completions more than double year-over-year

The Inland Empire’s industrial sector saw almost 17.5 million square feet of space coming online across 45 facilities year-to-date as of May. This accounts for 2.6 percent of the market’s total stock, way above the 0.9 percent national average. Completions in the metro more than doubled year-over-year.

Compared to other peer markets, the metro outpaced Phoenix (13.6 million square feet), Chicago (8.2 million square feet) and Atlanta (4.1 million square feet), and trailed behind Dallas (17.9 million square feet).

At the beginning of the year, Prologis completed Building 2 of Merrill Commerce Center, a more than 4 million-square-foot facility in Ontario, Calif. The property features 68 dock-high loading doors and is fully leased to Amazon, CommercialEdge data shows.

The company also completed two more buildings within the same campus, which added about 2.4 million square feet to its inventory. According to their plans, the development will incorporate about 8.5 million square feet at full buildout, spread across some 376 acres.

More industrial space in the works

At the end of May, the Inland Empire’s under-construction pipeline stood at almost 4.5 million square feet. With 25 properties being developed, the metro had 0.7 percent of total stock underway. The market was far behind peer metros, such as Chicago (1.0 percent), Atlanta (1.8 percent) and Dallas (1.8 percent). Phoenix led nationally, with about 38.7 million square feet underway, accounting for 9.8 percent of existing stock.

However, the metro’s share of industrial space in the under-construction and planning phases reached 7.4 percent of existing stock, surpassing Dallas (6.7 percent), the Bay Area (5.5 percent) and Atlanta (3.3 percent).

In March, a joint venture between CBRE Investment Management and Hillwood Investment Properties obtained a $756 million financing package for the construction of Speedway Commerce Center, a 6.6 million-square-foot logistics project. The first phase of the development will comprise two buildings with 40-foot clear heights, which are slated for completion in early 2025.

IDI Logistics is also active in the market, developing the second building within Perris Logistics Center North, a 2 million-square-foot industrial park in Perris, Calif. The firm broke ground on the 1 million-square-foot facility in April and plans to open it in the second quarter of next year.

Transaction activity remains strong

In terms of sales, the Inland Empire’s industrial sector registered $709 million in transaction volume year-to-date through May, ranking among the top 10 markets in the U.S. Assets traded on average for $216 per square foot, considerably above the $142 national average. However, this marks an almost $53 decrease compared to 2023’s same timeframe, when facilities changed hands for roughly $269 per square foot.

Nationally, the Bay Area ($582), Los Angeles ($313) and New Jersey ($272) commanded the highest sale prices per square foot, while Dallas ($152), Chicago ($91) and Atlanta ($112) were at the opposite pole.

In May, Stockbridge acquired a two-property portfolio totaling 540,478 square feet from Principal Asset Management. The fully leased assets in Ontario, Calif., traded for $142.3 million—or about $263 per square foot.

A month earlier, EQT Exeter purchased the 819,004-square-foot Commerce Way Distribution Center for $197 million, or nearly $241 per square foot. Manulife Investment Management sold the Fontana, Calif., property.

Highest rent growth nationally

Despite a sustained interest in the local industrial market, the metro’s vacancy rate increased to 6.6 percent in May, up by 440 basis points year-over-year. This can be attributed to a rise in the number of deliveries. Additionally, the vacancy was 100 basis points higher than the national average.

In May, the average asking rate in the Inland Empire stood at $10.19 per square foot. This marked a 12.6 percent increase year-over-year, the highest rent growth across the U.S. Notably, Orange County ($15.49 psf) commanded the highest asking rate nationally, while Phoenix ($8.95 psf), Atlanta ($5.76 psf) and Dallas-Fort Worth ($5.95 psf) were at the opposite end of the spectrum. The national average in the same month was $8.00, a 7.5 percent growth over the last 12 months.

In one of the largest deals of the first quarter, Amazon signed a more than 1 million-square-foot lease to occupy the entire Building 1 of Agua Mansa Commerce Park in Riverside, Calif. Upon full build-out, the PGIM Real Estate-developed campus is expected to measure 4.5 million square feet across six buildings.