In the middle of a slowing economy, the Inland Empire industrial market remains stable, as demonstrated by the continued positive absorption for the second quarter.
But the market did see a decrease in absorption, which was down roughly 1.2 million square feet from the first quarter’s 2.1 million square feet. The decreased net absorption figures can be attributed to the maturing Inland Empire west submarket and the steady addition of buildings to the Inland Empire east submarket as sale and leasing activity slows.
The Inland Empire east submarket has established itself as a tenant market, due largely to the abundance of state-of-the-art space being offered at competitive rental rates, while the Inland Empire west continues to see greater demand for less buildings.
The availability rate in the Inland Empire saw an increase from the first quarter to 12.8%. This increase in availability can be attributed to the number of buildings which have been completed, but remain unoccupied, specifically in the east submarket, along with the space that has been returned to the market.
Asking rates for land in the Inland Empire east have greatly decreased. Developers are being more careful about choosing potential development sites and the demand for smaller sites in the east submarket is declining. The amount of industrial buildings under construction in the Inland Empire has decreased sharply even since the first quarter. With the availability of large parcels of land and the potential for large distribution facilities in the Inland Empire east submarket, developers are most interested in tenants looking to consolidate and willing to prelease before construction.
Office Market
As the national economy continues to slow, the Inland Empire economy is also experiencing a downturn. Despite the overall poor performance of the economy in the first half of the year, the Inland Empire office market has seen stable leasing activity. The 30,813-square-foot Jacuzzi Brands Corp. lease transaction at The Shoppes at Chino Hills and the 20,446-square-foot Regus lease transaction in the Tyler submarket of Riverside are two recent big leases.
Although the leasing activity has remained stable, major corporate tenants are beginning to consolidate, which contributed to the negative absorption of 175,861 square feet for the year ending June.
Absorption did improve slightly in the second quarter posting a negative 81,816 square feet from the negative 94,045 square feet seen in the first quarter.
The under construction pipeline remains strong with nearly 2.1 million square feet in the second quarter.
Completed construction continued to increase to 240,475 square feet delivered to the market. Construction and tenants consolidating have contributed to the overall increase in vacancy rates. The overall vacancy rate for the Inland Empire increased from 14% in the first quarter to 15% in the second quarter. The availability rate is currently 18%, which includes sublease space in the market.
The economic slowdown in the Inland Empire has created a market that is full of opportunities for tenants.
Analysis provided by CB Richard Ellis.
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