ONTARIO, CA—The vacancy rate for industrial buildings under 100,000 square feet remains tight at 2.8% in the East Inland Empire and 2.2% in the West Inland Empire, reports Colliers International. As GlobeSt.com reported exclusively last week, vacancies are dropping and new construction soaring as logistics companies grow and e-retailers increase their appetites for large distribution and warehousing centers in the Inland Empire, according to the firm.

But there is still some availability for smaller space in this market. “These smaller buildings are the ones that tend to get overlooked when tenants and developers are discussing the Inland Empire market,” says Richard Schwartz, SVP for Colliers, who specializes in these submarkets. “There are a number of opportunities that tenants in this size range may be missing if they do not look here.”

Colliers is anticipating that 3.1 million square feet of new construction completions will take place during the fourth quarter, with 60% of it pre-leased. Average asking rental rates in the Inland Empire have remained flat year-over-year at 42 cents per square foot on a triple-net basis, according to the firm, but asking rental rates can be an inaccurate indicator of a market's actual rental-rate capacity. “That's why a significant portion of the larger projects that are being brought to market have undisclosed asking lease rates, making it more difficult for us to determine accurate asking rental-rate information,” says Schwartz. “With 11 projects over 500,000 square feet currently on the market and another building of that size scheduled to come on in the market in the fourth quarter, none of which have listed asking prices, it is often very difficult to determine with any accuracy an average asking rental rate for the smaller buildings in other parts of the Inland Empire. However, that really doesn't matter when you factor in these large buildings since they can skew the numbers greatly.”

According to Colliers, there remains 9.3 million square feet of this “big-box” product under construction in 11 projects, of which four are pre-leased. The report also notes positive net absorption of slightly more than 3 million square feet in the third quarter, the 20^th consecutive quarter of positive net absorption for the Inland Empire. Year-to-date net absorption stood at 9.9 million square feet at the end of the third quarter.

“It's well known throughout the brokerage business that most of that positive absorption during the third quarter was composed almost entirely of the 1.2 million square feet that Amazon took down for its distribution center in Moreno Valley,” says Schwartz. “With that kind of size and clout, one deal can have an immense impact on the market.

Colliers reports that Amazon also took 700,000 square feet in Redlands for its larger item fulfillment center, creating more than 1,000 new jobs with it and its Moreno Valley facility. According to Colliers, the unemployment rate for the Inland Empire was 8.7% as of August, and the area experienced job growth of 2.7% over the last 12 months. Trade, transportation and utilities continued to outperform other sectors, adding 7,600 jobs, while construction employment increased by 3,000 jobs over the same time period.

“With its low vacancy rates, declining unemployment rate and rising levels of construction, the Inland Empire seems poised to continue its growth levels through the next two years, at least,” says John Hollingsworth, executive managing director of Colliers International. “As companies find an absolute lack of industrial product in closer-in locations, like the Mid-Cities submarket of Los Angeles County, they will continue to look east to the Inland Empire, especially for the largest facilities. There just isn't anywhere else that land is available for such large facilities.”