The real estate adage “location, location, location” defines few regions greater than what’s known as the Inland Empire. Spanning across Southern California’s Riverside and San Bernardino counties and located just an hour from the Port of Los Angeles and the Port of Long Beach, it has emerged as a center of industrial logistics.
NAIOP took 50 conference attendees on a journey through the Inland Empire during a pre-conference project tour at I.CON West 2019, NAIOP’s industrial conference held this week in Long Beach. The group toured four project sites in various stages of completion — from seeing a slab being poured at one to walking through two fully automated fulfillment centers — and learned the history of the region on the bus trip to the market.
The area’s first explosion in growth came in the 1870s with the importation of navel and Valencia orange trees, which led to the area quickly becoming a major center for citrus production. Access to water from the Colorado River led increased the region’s agricultural boom and the formation of the largest dairy farming area in the country (although some Wisconsinites argue this point!).
Post-World War II, the Los Angeles basin was the first place in the U.S. where many troops returning home set foot. After their time overseas, Southern California’s good weather and great location made it a desirable place to stay. Soon, the industrial sector followed as a new generation of real estate developers developed freeways and expanded the Los Angeles suburbs into the valleys surrounding the city.
When China joined the World Trade Organization in the 1980s, it drove the two Southern California ports to quickly grow. Today, 45 percent of containers coming into the U.S. come through these ports. Of that, 40 percent stays to service the West Coast, and the other 60 percent goes east on rail.
Users like Procter & Gamble, General Mills and Walmart began to expand operations in the Inland Empire in the early 1990s, and capital soon followed. The labor component was already there – residential real estate had previously experienced a boom of its own as families moved east and inland for affordability.
Today, the Los Angeles County Economic Development Corp. says Inland Empire leads Southern California in construction of logistics and freight-related warehousing real estate.
It’s best to position warehousing, logistics and wholesale trade facilities closer to population centers to provide quicker delivery times, especially with e-commerce
Four main factors are credited with why users are moving to the Inland Empire:
- Availability of product: There is an historic low in availability of bulk warehouse space in the Southern California market, but there’s room to grow in the Inland Empire. A 2019 Lee & Associates report says that 27.3 million square feet of industrial space was absorbed in Riverside and San Bernardino counties in 2018, topping 16.9 million square feet in 2017 and 19.3 million in 2016, both of which were considered strong years.
- Quality of building: Because the region comprises all new construction (no vintage warehouses in need of an overhaul here), they are built to today’s highest standards. This means 40’ high clearances and space to house fully automated facilities, among others.
- Size of building: An abundance of land means it’s not as difficult for a tenant to secure a building larger than 500,000 square feet (unheard of in more urban markets). This is most attractive to users who want to consolidate under one roof rather than leasing multiple smaller facilities.
- Pricing: Both land costs and lease rates are less expensive in the market. CBRE reports that the average asking lease rate for industrial space in the Inland Empire was $0.57 per square feet in the last quarter of 2018, compared to $0.85 in Los Angeles County and $1.05 per square foot demanded in San Diego County.
Inland Empire is a market that is thriving today but has plenty of room to grow, in terms of new space and more tenants. GlobeSt recently reported that it led the U.S. in industrial warehouse leasing activity for another year and nearly doubled that of its closest competitor of the Lehigh Valley market in Pennsylvania. It accounted for 20 of the top 100 industrial leases signed last year, totaling 18.98 million square feet of industrial space.