The Inland Empire’s industrial and office markets continued to mark progress amid the region’s budding economic recovery in the first quarter.
Construction activity started slowly to pick up in the industrial segment, with 5.3 million square feet of industrial speculative development under construction. That’s the most industrial activity since the third quarter of 2008.
West Does Best
Net absorption in the industrial market increased 210,000 square feet to a total 2.3 million square feet. That included a 459,000-square-foot lease for Ceva Logistics in Ontario and a 400,480-square-foot lease for New Home Furnishings in Fontana. Inland Empire West was the most active submarket with 4 million square feet of industrial net absorption in the first three months.
The Inland Empire’s availability level grew while the vacancy rate declined in the quarter. The vacancy rate now stands at 7.4%, down from 7.5% in the fourth quarter.
Most of the increase was in the Inland Empire East, where the vacancy rate went from 8.5% in the fourth quarter to 9.1% in the first quarter, partially due to significant vacancies in Moreno Valley and Perris. Availability rose to 12.5% from last quarter’s 12%.
The Inland Empire office market also started the year with some positive momentum, but quarterly gains were more modest.
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 slipped to 22.7% in the first quarter, reflecting less than a 1% decline from last quarter’s rate of 22.9%. The total amount of available space dipped to 26.8%, as an uptick in demand resulted in 50,608 square feet of positive net absorption. The Inland Empire East experienced 65,845 square feet of positive absorption this quarter, offset by the Inland Empire West submarket’s 15,237 square feet of negative net absorption.
The overall amount of absorbed space in the first quarter still surpassed the year-to-date total for all of 2011.
The Inland Empire’s low rents continued to offer a strong competitive advantage for the region in contrast to other Southern California markets. Landlords continued to advertise reduced rents in order to maintain this competitive advantage, as well as to attract a broader range of tenants to their space. The overall average asking lease rate shed an additional 2 cents this quarter to $1.67 per square foot.
One in Works
The Inland Empire remains saturated with existing office projects constructed prior to the economic downturn, suppressing plans for further development in the near future. Citrus Tower in Riverside is the only office property in the construction phase.
Data and analysis provided by CBRE Group Inc.
The Real Estate Watch Chart
Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
