Inland Empire Leads US in Major Industrial Leases
In the first half of the year, the Inland Empire was home to 14 of the top industrial deals in the country, totaling 11.6 million square feet.
“The ports of Los Angeles and Long Beach are the preferred routes to enter into the United States, and that is because it is quicker and cheaper to go that route, even putting product on rail,” Dan de la Paz, EVP at CBRE, tells GlobeSt.com. “From a demand standpoint, where last year was the best year ever on record and this year could exceed last year, I am not surprised from a container demand standpoint. The second largest US port is in New Jersey and New York, and they are out of land for development, even including in Pennsylvania. In Southern California, we have the fortunate abundance of land where we can build anywhere from 15 million to 25 million square feet of new warehouse space per year. We have enjoyed that dynamic over the last 30 years, but that is going to stop quickly because we are running out of industrial zoned land.”
Ecommerce and third-party logistics companies led the leasing activity both nationally and in the Inland Empire. Ecommerce users, in general are the biggest occupants of 1 million-plus-square-foot assets. “Ecommerce is the biggest driver. Those users will occupy a bigger building of 1 million square feet plus-or-minus,” says de la Paz. “When you look at the overall percentage of retail that is consumed by ecommerce, the jump is quite substantial. We are definitely seeing food service and 3PL activity. At the end of the day, the driver is really consumer goods.”
Demand in the Inland Empire is robust in all size groups. In fact, de la Paz says there is growing demand for sub 300,000-square foot industrial product. “All size categories are growing. In the last 10 years, the smaller local business were really frozen and didn’t make any real estate moves,” he says. “What we are finding over the last year and a half, these smaller businesses are starting to grow and have confidence, and they are taking down larger blocks of space. We see that deal flow below 300,000 square feet is robust, and lease rates are the strongest from a growth standpoint.”
Leasing activity for big box is likely to remain strong through the end of the year. “There are a couple of leases out on larger blocks of space, so I think that this year will round out really nicely with a few more larger deals,” adds de la Paz. “If you get three to five 1 million square foot deals, that has a huge impact on our numbers. That is what we are anticipating in the fourth quarter.”