Industrial Market
With the continual decline of imports into the Los Angeles and Long Beach ports, many distributors in the Inland Empire have been pushed to carefully analyze their cost savings in order to improve profits,this has often meant consolidation.
That has pushed down demand for industrial buildings. Coupled with buildings being completed and delivered to the market empty, this equation has had a tremendous impact on absorption during the past year. However, the Inland Empire has somehow managed to prove itself as a steady competitor in this calamitous market.
Closing out the second quarter with an overall absorption of more than 2.3 million square feet, the market saw an increase of 1.1 million square feet in absorption from the first quarter. This can be attributed to the completion of a 1.3 million-square-foot build-to-suit lease signed by Hanesbrands Inc. in Perris. Some other notable transactions are a 645,311-square-foot lease signed by IDS USA in Mira Loma, as well as a 574,080-square-foot building sold to Trader Joe’s in Fontana.
The Inland Empire west submarket continues to dominate with the majority of activity, closing out the second quarter with nearly 4 million square feet of activity. The east submarket closed the quarter with 2.8 million, a notable increase of nearly 15%.
The Inland Empire had varying levels of increases and decreases in the availability
and vacancy levels compared to the first
quarter.
First quarter’s availability rate of 14.7% increased to 15.4%, or a value of slightly more than 2.6 million square feet of new available space.
Office Market
Leasing activity remained strong in the first half of the year with many large transactions completed in the second quarter. The few bright spots in the region have been the healthcare, education and government sectors, evidenced by the 32,977-square-foot San Bernardino County Superintendent transaction in downtown San Bernardino and the 23,485-square-foot United Education International College transaction in Ontario.
Despite the notable leasing activity, many companies continue to constrict or dissolve, increasing vacancy. An example: the 260,730 square feet that Ameriquest vacated at Atrium Lakes in Rancho Cucamonga.
Adding to the vacancy, two of the few remaining speculative developments recently were completed in Riverside and Corona, totaling 392,760 vacant square feet.
The current economic conditions have created a tremendously beneficial situation for tenants. They now are determining the market and enjoying the benefits of multiple prime location options, additional concessions and more tenant-friendly lease terms. This translates to higher tenant improvement allowances, discounted lease rates and more free rent,resulting in lower effective rents.
The keys to an economic recovery that many Inland Empire economists are now predicting to occur in the second half of 2010 will be the region’s housing affordability and the low cost of doing business.
Analysis by CB Richard Ellis Group Inc.
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