The Inland Empire industrial market had many positive economic signs throughout 2014, an indication the region is still substantially expanding. Growth of tenants has largely propelled the activity.
Positive trends in the fourth quarter included robust levels of new construction, higher demand and falling availability in all size ranges. The region continued its inevitable shift back to a landlord’s market as a result of demand outpacing supply in most areas.
The overall average asking lease rate was 39 cents per square foot at the end of the fourth quarter, up 1 cent since the first quarter.
The overall vacancy rate in the Inland Empire finished the year at 4.5%, down from 4.6% in the third quarter but up from 4% in the first quarter.
The Inland Empire’s availability rate was 7.4%, down from 8.2% in the third quarter.
Availability dropped in most size ranges as a result of existing tenants renewing. CBRE predicts that the rate will rise to 10.1% by year-end as a result of demand lagging supply.
In 2014, the market generated 33.4 million square feet of gross activity, one of the highest levels on record.
The market generated 2.5 million square feet of positive net absorption in the fourth quarter, putting the year-end total at 16.1 million square feet. E-commerce and consumer goods tenants such as Amazon and Wal-Mart led the way in leasing.
Office Market
The Inland Empire office market moved positively as a whole.
The Inland Empire West carried the greater region, with 309,270 square feet of positive net absorption in Ontario and Rancho Cucamonga. The Inland Empire East was largely flat, continuing a deceleration that began in the third quarter.
The average asking lease rate for the region dropped to $1.75 per square foot from $1.78, breaking a trend of increasing rates that had been developing in the past five quarters. Primarily fueling the change were large move-outs in more expensive projects, causing landlords to adjust their asking rates.
The 2014 Inland Empire office sales market was the healthiest it’s been in six years, posting the largest volume since 2008. The largest office property sale closed in November when Golden Gate Baptist Theological Seminary purchased 3219 E. Guasti Road, a 144,931-square-foot class A office in Ontario from Greenlaw Partners and Walton Street Capital. The buyer plans to occupy the building, which was 90% vacant at the purchase. The transaction had a significant influence on quarterly market vacancy and absorption.
Analysis provided by CBRE Research
