Inland Empire Industrial Market. Q2 2017. SALES ACTIVITY. PROPERTY ADDRESS. SIZE SF. SALE PRICE. PRICE PSF. BUYER. SELLE
Research & Forecast Report
INLAND EMPIRE | INDUSTRIAL Q2 2017
Accelerating success.
>> Lowest Ever Vacancy Rate Drives Up Rates Key Takeaways
Market Indicators | Relative to prior period
> The vacancy rate has reached a record low of 3.8%. This is due to continued strong industrial demand and low construction completions for the quarter.
Vacancy
> Asking rents increased $0.01 PSF NNN over the quarter and have increased $0.05 PSF NNN over the past 12 months to end at $0.55 PSF NNN in Q2 2017. Rents are also 10 cents higher than the previous peak of $0.45 PSF NNN in 2007.
Rental Rate
> Net absorption totaled 4.7 million SF for the quarter, due in a large part to 3.4 million SF added to the base. Roughly 70% of new industrial space was pre-leased or pre-sold before completion. > Construction completions this quarter were 3,467,200 SF. Incliment weather during El Niño has pushed many industrial projects back a quarter.
Q2 2017
Forecast
Net Absorption Construction
Summary Statistics | Inland Empire, Q2 2017 Vacancy Rate
3.8% -30 BPS
Change from Q1 ‘17 (Basis Points) Net Absorption
4,696,500 SF
Construction Completions
3,467,200 SF
Under Construction
23,203,100 SF
Asking Rents | Inland Empire, Q2 2017 Inland Empire Industrial Market
Inland Empire Industrial Market The Inland Empire market remains the most sought after warehouse / distribution market in the United States, with the lowest vacancy rate and highest rental rate of comparable major distribution hub markets. New speculative construction activity remains on the minds of developers. In the past 12 months, there has been a total of 12.3 million SF of new supply added to the base. During this time the vacancy rate has reached a new low as nearly all new supply has been absorbed by large tenants seeking modern distribution centers.
Average Asking Rent
$0.55 PSF NNN
Change from Q2 ‘16
+$0.05
Y.O.Y. Change (%)
+10.0%
Labor Force | Inland Empire, Q2 2017
12-mo Employment Growth (%) 12-mo Actual Employment Change
Construction
Manufacturing
Transportation, Trade & Utilities
18.0%
0.1%
1.9%
+16,500
+100
+6,600
Q2 2017
INLAND EMPIRE | INDUSTRIAL
> Vacancy declined 30 basis points to 3.8%, the lowest vacancy rate ever recorded in the Inland Empire.
Historical Vacancy v. Rents | Inland Empire | Q2 ‘13-’17
> Vacancy remains tightest in the West Inland Empire at 2.2% compared to 5.8% in the East Inland Empire.
Absorption and Leasing Activity > Industrial demand remained strong at 4,696,500 SF of positive net absorption, the 31st consecutive quarter of growing industrial demand.
20% 18% 16% 14%
$0.40
12% $0.30
10% 8%
$0.20
6% 4%
$0.10
2%
> Sales and leasing activity totaled 9,010,300 SF this quarter. This was broken out into 29 sales (1,302,600 SF) and 95 leases (7,707,700 SF). > Forecast: Absorption is likely to remain positive for future quarters as buildings are constructed. Growing tenants have few options in Southern California and the Inland Empire will attract tenants from infill markets.
VACANCY
$0.50
$ PSF PER MONTH (NNN)
> Forecast: Vacancy is at an all time low and further declines will be hard to achieve. This is especially true given that 23.2 million SF remains in the construction pipeline.
RENTS
$0.60
% VACANT (TOTAL)
Vacancy
$0.00
0% 2Q13
4Q13
2Q14
4Q14
2Q15
4Q15
2Q16
4Q16
2Q17
Avg. Asking Lease Rates | Inland Empire | Q2 ’17 $0.70 $0.61
> Forecast: Rents are at an all time high. This is due to rising market conditions for brand new buildings with state of the art features, which is reflected in the rental rate. These newer buildings allow tenants to be more efficient in lowering operating costs and increasing the velocity at which goods can be sorted and shipped. This is especially true for E-commerce related tenants who require specialized build outs.
$0.55
$0.55
$0.56
$0.57
$0.50
$0.47
$0.50 $0.42 $0.40
$0.40
CHINO
ONTARIO
FONTANA
RANCHO CUCAMONGA
JURUPA VALLEY / EASTVALE
CORONA
RIVERSIDE
REDLANDS/ LOMA LINDA
RIALTO
COLTON
SAN BERNARDINO
$0.30
MORENO VALLEY
> E-Commerce tenants continue to be a driver of demand. Landlords for these larger companies are seeing increased tenant improvements and also longer free rent periods to make the necassary improvements. In exchange, they are getting longer lease terms at higher rates to compensate.
$0.54 $0.53 $0.49 $0.52
PERRIS
> Much of the newer industrial space currently on the market does not have a marketed asking lease rate, making rental rate comparisons challenging.
$ PSF PER MONTH (NNN)
> Average asking rates increased $0.01 PSF NNN over the quarter to end at $0.55 PSF NNN. Asking rents, as well as effective rents, continue to rise.
Historical Sales & Leasing Activity | Inland Empire | Q2 ‘13 - ‘17 16.0 15.0 14.0 13.0 12.0 11.0
SF (MILLIONS)
Rental Rates
$0.60
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2Q13
2
2Q14
2Q15
2Q16
2Q17
Q2 2017
INLAND EMPIRE | INDUSTRIAL
Construction
> There were 3,467,200 SF of construction completions this quarter. 23.2 million SF of industrial space remains under construction.
Historical Net Absorption & Construction Completions Inland Empire | Q2 ‘13-’17
NET ABSORPTION
12.0
> Development is heavily concentrated in buildings over 500,000 SF which account for 60% of all space currently under construction.
10.0
8.0 SF (MILLIONS)
> Forecast: Low vacancy rates and rising rents are leading to increased speculative construction. Next quarter may see upwards of 5 million SF brought to market.
CONSTRUCTION COMPLETIONS
6.0
4.0
Investment Trends
2.0
> Cap rates have decreased over the quarter to average 5.1% in Q2 2017. Cap rates for investment grade product have traded as low as 4%. > Average investment sales prices have increased and now average $101 PSF. > Forecast: Large, fully leased assets in a prime location command a significant premium in the Inland Empire; which is considered a core market for institutional industrial investors.
0.0 2Q13
2Q14
2Q15
2Q16
2Q17
Investment Trends Chart Inland Empire Q2 ‘13-’17
Average Price Per sf
Average Cap Rate
7.0%
Outlook
6.0%
> The market is at an all time high for asking rents and an all time low for vacancy rate.
$100
5.0%
$80
4.0%
> Demand remains strong and continues to outpace supply. This is leading to increased construction for large modern distribution centers, driven largely by E-commerce companies further expanding their industrial footprint.
$60 3.0% $40
2.0%
$20
1.0%
> Amazon and other online retailers have disrupted the retail landscape. Consumer preferences have changed the nature of traditional distribution models. This disruption has benefited the Inland Empire which serves as the vital hub of E-Commerce in Southern California and the Western United States. > E-Commerce has grown from 3.5% of all retail sales in 2007 to currently 8.5% of all retail sales in 2017. The pace of this growth has not slowed. As the percentage of retail continues to grow, so too will the need for industrial space.
$120
0.0%
$0 2Q13
2Q14
2Q15
2Q16
2Q17
Unemployment Rate | May 2017 4.6%
4.5%
4.5% 4.4% 4.3% 4.2% 4.1%
4.2% 4.1%
4.0% 3.9% 3.8%
3
United States
California
Inland Empire
Q2 2017
INLAND EMPIRE | INDUSTRIAL
Market Description
Submarket Map
The Inland Empire is comprised of 487.8 million square feet and represents 28 percent of the total industrial space in the Los Angeles Basin for buildings 10,000 square feet and greater. Considered the premier big-box market in Southern California, approximately 74 percent of the space in this market is in buildings 100,000 square feet and greater. The vast majority (88%) of its space was built in the past 20 years. The Inland Empire continues to attract large distributors, warehousers, E-commerce companies and logistics firms seeking to consolidate their operations into large, state-of-the-art facilities.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Inland Empire Industrial Market Q2 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
150 Radio, Corona
170,000 SF
$22.5 Million
$133 PSF
Seneman
Conor Commercial
14581 Meyer Canyon, Fontana
85,500 SF
$11 Million
$130 PSF
Champion Power Supply
Oakmont Industrial Group
1400 Holt, Ontario
91,700 SF
$8.6 Million
$94 PSF
1400 Holt LLC
The Beacon Group, Inc.
1331 6th, Corona
54,300 SF
$8.5 Million
$157 PSF
Seneman
Conor Commercial
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
2501 San Bernadino, Redlands
683,300 SF
Direct - New
Distribution
TBC Corporation
ProLogis
5959 Palm, San Bernardino
624,600 SF
Direct - New
Distribution
JC Penney
Pacific Industrial
290 Markham, Perris
474,200 SF
Direct - New
Distribution
TechStyle, Inc.
Circle Industrial, LLC
9889 Almond, Redlands
190,200 SF
Direct - New
Distribution
ODW Logistics
Crow Holdings
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
Watson Industrial Park
Watson Land Company
1,146,000 SF
Chino
Under Construction
Q3 2017
17350 Perris, Moreno Valley
Alere Property Group
1,109,400 SF
Moreno Valley
Under Construction
Q1 2018
400 Palmyrita, Riverside
Trammell Crow
1,003,400 SF
Riverside
Under Construction
Q3 2017
24100 Nandina, Moreno Valley
CalSTRS
739,900 SF
Moreno Valley
Under Construction
Q2 2018
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
Q2 2017
INLAND EMPIRE | INDUSTRIAL
INDUSTRIAL OVERVIEW INLAND EMPIRE Q2 2017
EXISTING PROPERTIES Submarket/ Building Size
Bldgs
Total Inventory SF
CONSTRUCTION
VACANCY
Completions Under Vacancy Current Qtr Construction Vacancy Prior Qtr SF SF
AVAILABILITY
Availability
ACTIVITY
ABSORPTION
Total Gross Total Gross Net Net Sales Number of Lease Number Activity Current Activity YTD Absorption Absorption Activity SF Sales Activity SF of Leases Qtr SF SF Current Qtr SF YTD SF
RENTS Weighted Avg Asking Lease Rates
INLAND EMPIRE WEST CHINO
676
46,989,100
571,900
2,832,700
0.6%
1.8%
2.0%
100,400
1
1,152,100
17
1,252,500
1,998,500
1,102,600
827,600
$0.61
FONTANA
533
58,640,400
176,900
2,741,200
3.9%
4.2%
5.7%
257,500
5
1,348,100
12
1,605,600
4,268,900
303,200
1,441,700
$0.57
EASTVALE
214
32,943,200
148,800
2,677,100
1.7%
0.5%
3.1%
0
0
260,600
5
514,400
-269,500
-233,500
$0.50
ONTARIO
1,081
101,391,300
123,700
1,035,800
2.0%
2.5%
3.4%
219,700
3
1,237,100
14
1,456,800
4,551,600
591,900
1,554,000
$0.56
667
40,501,600
45,800
41,500
2.5%
2.0%
4.5%
93,200
4
430,700
10
523,900
1,191,200
-145,400
-46,800
$0.55
3,171
280,465,600 1,067,000
9,778,700
2.2%
2.4%
3.8%
670,800
13
4,428,600
58
5,099,400
12,785,100
1,582,900
3,543,000
$0.57
JURUPA VALLEY /
RANCHO CUCAMONGA INLAND EMPIRE WEST TOTAL
INLAND EMPIRE EAST COLTON
111
7,914,700
179,233
758,400
3.4%
1.0%
4.9%
0
0
10,000
1
10,000
154,200
-13,700
54,100
$0.49
CORONA
628
26,803,400
222,600
481,900
2.3%
1.6%
5.9%
366,600
6
184,400
7
551,000
1,226,200
45,200
651,000
$0.55
MORENO VALLEY
71
20,972,300
0
1,341,700
8.0%
7.9%
9.4%
0
0
0
0
0
0
-13,700
-13,700
$0.42
PERRIS
139
21,283,000
1,319,900
2,740,800
1.2%
3.1%
1.6%
40,000
1
520,000
2
560,000
1,415,500
1,744,900
2,462,900
$0.40
REDLANDS / LOMA LINDA
152
25,745,900
214,700
1,018,300
15.4%
15.9%
15.8%
10,400
1
1,057,500
5
1,067,900
2,448,700
323,600
709,900
$0.53
RIALTO
165
25,740,400
0
2,207,800
5.5%
7.3%
5.5%
82,500
2
485,400
2
567,900
598,900
448,100
479,100
$0.52
RIVERSIDE
765
42,728,300
286,200
3,466,500
4.0%
3.5%
6.2%
49,700
3
367,700
17
417,400
1,206,600
22,200
-4,500
$0.54
SAN BERNARDINO
392
36,192,700
177,600
1,408,800
6.1%
7.2%
7.5%
82,600
3
654,000
3
736,600
759,100
557,200
319,800
$0.47
2,423 207,380,700 2,400,200 13,424,200
5.8%
6.2%
7.3%
631,800
16
3,279,000
37
3,910,800
7,809,200
3,113,800
4,658,600
$0.52
INLAND EMPIRE EAST TOTAL
INLAND EMPIRE WEST 10,000 - 19,999
1,108
15,172,700
0
0
0.4%
0.6%
1.5%
38,800
3
133,300
9
172,100
383,200
28,400
26,200
$0.73
20,000 - 39,999
738
20,174,700
84,300
348,200
1.5%
1.5%
3.4%
22,100
1
314,400
11
336,500
613,000
108,000
93,100
$0.68
40,000 - 69,999
426
21,251,000
248,500
894,900
2.6%
2.1%
5.0%
185,400
4
411,400
12
596,800
1,214,100
54,100
270,600
$0.59
70,000 - 99,999
171
13,926,100
0
461,300
3.8%
3.7%
4.6%
324,100
4
379,200
7
703,300
850,000
-6,300
-288,600
$0.58
100,000 - 249,999
410
61,547,800
734,200
1,231,100
2.2%
2.7%
5.2%
100,400
1
1,375,500
12
1,475,900
2,888,900
990,100
711,500
$0.56
250,000 - 499,999
215
74,671,800
0
1,814,900
2.3%
2.5%
4.2%
0
0
1,006,400
4
1,006,400
3,420,100
169,400
961,600
$0.53
500,000 +
104
73,721,500
0
5,028,500
2.3%
2.6%
2.3%
0
0
808,400
3
808,400
3,415,700
239,100
1,768,400
$0.41
9,778,900
2.2%
2.4%
3.8%
670,800
13
4,428,600
58
5,099,400
12,785,000
1582800
3,542,800
$0.57
INLAND EMPIRE WEST TOTAL
3,172
280,465,600 1,067,000
INLAND EMPIRE EAST 10,000 - 19,999
943
12,962,000
0
31,400
0.7%
1.0%
2.0%
82,900
6
79,700
6
162,600
239,200
37,600
46,400
$0.59
20,000 - 39,999
585
16,042,300
155,500
115,800
1.9%
1.2%
3.6%
102,600
4
161,500
8
264,100
485,600
6,700
81,800
$0.56
40,000 - 69,999
344
17,349,800
232,500
212,500
3.7%
2.1%
8.8%
206,900
4
202,600
9
409,500
807,200
-78,900
162,600
$0.56
70,000 - 99,999
132
10,772,200
262,200
71,100
3.9%
2.1%
5.3%
71,100
1
203,800
4
274,900
612,900
74,800
162,900
$0.54
100,000 - 249,999
212
30,062,900
525,100
1,826,500
7.0%
5.2%
8.9%
168,300
1
202,100
4
370,400
1,011,700
-8,100
-61,800
$0.50
250,000 - 499,999
91
30,711,800
0
2,203,100
9.8%
11.4%
13.1%
0
0
474,200
1
474,200
1,320,900
474,200
965,700
$0.40
500,000 +
116
89,479,700
1,224,900
8,963,800
6.2%
7.7%
6.2%
0
0
1,955,200
5
1,955,200
3,331,900
2,607,400
3,300,900
$0.37
2,423 207,380,700 2,400,200 13,424,200
5.8%
6.2%
7.3%
631,800
16
3,279,100
37
3,910,900
7,809,400
3,113,700
4,658,500
$0.52
INLAND EMPIRE EAST TOTAL
INLAND EMPIRE TOTAL 10,000 - 19,999
2,051
28,134,700
0
31,400
0.5%
0.8%
1.7%
121,700
9
213,000
15
334,700
622,400
66000
72,600
$0.68
20,000 - 39,999
1,323
36,217,000
239,800
464,000
1.7%
1.4%
3.5%
124,700
5
475,900
19
600,600
1,098,600
114700
174,900
$0.64
40,000 - 69,999
770
38,600,800
481,000
1,107,400
3.1%
2.1%
6.7%
392,300
8
614,000
21
1,006,300
2,021,300
-24800
433,200
$0.59
70,000 - 99,999
303
24,698,300
262,200
532,400
3.8%
3.0%
4.9%
395,200
5
583,000
11
978,200
1,462,900
68500
-125,700
$0.58
100,000 - 249,999
622
91,610,700
1,259,300
3,057,600
3.8%
3.5%
6.4%
268,700
2
1,577,600
16
1,846,300
3,900,600
982000
649,700
$0.53
250,000 - 499,999
306
105,383,600
0
4,018,000
4.5%
5.1%
6.8%
0
0
1,480,600
5
1,480,600
4,741,000
643600
1,927,300
$0.45
500,000 +
220
163,201,200 1,224,900
13,992,300
4.4%
5.4%
4.4%
0
0
2,763,600
8
2,763,600
6,747,600
2846500
5,069,300
$0.37
5,595 487,846,300 3,467,200 23,203,100
3.8%
4.1%
5.3%
1,302,600
29
7,707,700
95
9,010,300
20,594,400
4,696,500
8,201,300
$0.55
INLAND EMPIRE TOTAL
5
Q2 2017
INLAND EMPIRE | INDUSTRIAL
Definitions of key terms in this report Total Rentable Square Feet: Industrial space in buildings with 10,000 SF or more of industrial space. Includes speculative as well as owner-occupied buildings. Excludes Research & Development (R&D) buildings (industrial buildings with at least 30% office build-out, 3/1000 parking ratio and a high level of finish). Excludes space that is under-construction or renovation. Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, for sublease or for sale, plus space that is vacant but not available for direct lease or sublease. Availability: All space that is being currently marketed for occupancy, includes space which may be currently occupied or which may be under construction or renovation. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Gross Activity: Square feet sold and leased for all known transactions completed during the quarter. Excludes lease renewals. Excludes investment sale transactions. Weighted Average Asking Rental Rates: Weighted by square feet available for direct lease. Data is based on triple net rents, and excludes expenses such as taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. Construction Completions: Total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy.
Technical Note Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www. colliers.com/greaterlosangeles.
396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111
> Over 15,000 professionals
UNITED STATES: Inland Empire Office License No. 01908231 2855 E. Guasti, Ste 401 Ontario, CA 91761
HANS MUMPER
Executive Managing Director Greater Los Angeles
THOMAS GALVIN Research Analyst Research Services 6
> $2.6 billion in annual revenue > 2.0 billion square feet under management
TEL: +1 909 605 9400 FAX: +1 909 937 6330
