Industrial and office markets in the Inland Empire continued to mark only the most modest signs of recovery through December.
The industrial-space availability rate stood at 11.9% in the Inland Empire at the end of 2011, a slight improvement compared to the 11.7% rate at the end of September.
The market showed greater improvement over 2010’s availability of 14.3%, primarily due to strong demand for larger buildings and limited new construction. Availability of buildings 500,000 square feet and greater was 3.7% at year’s end.
Forecast
CBRE Econometric Advisors forecasts the overall availability rate to hover around 11.6% throughout 2012.
Total net absorption for 2011 dipped to 10.3 million square feet from 11.4 million at the end of 2010. The fourth quarter contributed 1.4 million square feet of net absorption, or less than half of the third quarter’s net absorption.
This quarter’s largest lease transactions consisted primarily of activity in Ontario, with 16 leases comprising about 1.4 million square feet and five of the transactions for space 100,000 square feet and greater. The largest transaction this quarter was Georgia Pacific’s 763,228 square foot lease of a class A distribution building at 4100 Mission Blvd., and other significant transactions included Ingram Micro’s 562,089 square foot renewal at 3510 E. Francis Ave.
Inland Empire’s office market saw some momentum heading into January, but the region continues to deal with the effects of the national recession. Record-high vacancy levels among office properties have yet to subside, in large part due to newly constructed speculative space that remains unoccupied.
The overall vacancy rate has hovered above 20% since the end of 2008. The vacancy rate ticked up slightly to 22.8% in the fourth quarter, less than a 1% decline from last year’s rate of 23%.
Available Space
The total amount of available space—which includes both occupied direct and sublease space—had a slight increase in the December quarter and stands at 27.9%, as a dip in demand resulted in 20,421 square feet of negative net absorption. Inland Empire East saw 37,031 square feet of negative absorption in the quarter, which was offset by the Inland Empire West submarket, which accounted for 16,610 square feet of positive net absorption.
The year closed negative for the quarter, but all of 2011 closed with a total of 43,861 square feet of positive net absorption.
Low Rents
The Inland Empire’s low rents continue to offer a strong competitive advantage for the region in contrast to other Southern California markets. Landlords continued to advertise reduced rents to maintain this competitive advantage, as well as to attract a broader range of tenants to their space. As a result the overall average asking lease rate shed an additional eight cents this quarter to $1.59 per square foot.
Analysis provided by CBRE Research.
