Asking Rents Rise & Vacancy Continues to Decline

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 24.5 million SF of new supply added to the base. During this time, the vacancy rate has been virtually unchanged as nearly all new supply has been absorbed by large tenants seeking modern distribution centers.

Key Takeaways:

  • The vacancy rate fell 20 basis points this quarter as several large projects were absorbed. The current vacancy rate stands at 4.5%.

  • There was 3,374,900 SF added to the base, 68% of which was sold or leased prior to completion.

  • Strong demand and brand new industrial buildings are helping to drive up asking rents. Asking rates have increased $0.02 PSF NNN over the quarter to end at $0.52 PSF NNN.

  • There is currently 13,640,300 SF of space currently under construction. The pace of construction activity increased over the quarter, especially for smaller projects.

  • Net absorption recorded 4,344,600 SF. Demand continues to outpace supply, leading to tightening market conditions.

Outlook:

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. This quarter saw the seventh largest shipping company, Hanjin Shipping Co. declare bankruptcy. Hanjin is the majority owner of the largest terminal in Long Beach, Total Terminals International. As such, import traffic was down 10.3% in Long Beach for the most recent quarter, while traffic in neighboring Los Angeles was up 3.3% for this same time period. Longer term we will likely see shipping costs rise to a sustainable level as the glut of container ships subsides.