Industrial Rents Expected to Jump This Year

LOS ANGELES—The industrial market in the Inland Empire is continuing to grow, with rents expected to jump 7.5% this year as demand continues to outpace supply.

 April 12, 2017 | By Kelsi Maree Borland

LOS ANGELES—Heading into 2017, there were high expectations for the Inland Empire industrial market. Now that the first quarter is coming to a close, we sat down with Rick John, EVP of DAUM Commercial Real Estate Services in Los Angeles and an Inland Empire expert, to talk about how the performance is stacking up to expectations. As expected, the market is continuing to show strong performance, and vacancy rates are down to just 4%. In this exclusive interview, John talks about the development trends, expectations for sale prices and rental rates and how third-party logistics are continuing to drive the market.
GlobeSt.com: What are some of the Inland Empire’s most prominent recent transactions, and what trends in development do they indicate? 
Rick John: The Inland Empire saw 90 transactions over 100,000 square feet the last year, including Floor & Decor’s lease of a 1.1 million square-foot warehouse in Moreno Valley, the expansion of LG Electronics into Sierra Pacific Center’s second building in Fontana, and Amazon’s new fulfillment center in Eastvale, developed by Goodman Group. Due to the lack of sites in the west, the most prominent potential game-changer is the new “east end” for industrial development created by Wolverine Worldwide’s new distribution center. The property, which recently opened in Beaumont, was developed farther east than previous speculative buildings in the Inland Empire. This opens up the area for future industrial development.
GlobeSt.com: What trends do you expect to see in industrial sale prices and leasing costs for the remainder of 2017?
John: There is a projected 7.5% increase in rates expected in 2017, which is good news for owners. In addition, sale prices continue to be on the rise.  Last year, industrial rents and sale prices both surpassed the 2007 peak, indicating strong demand driven by eCommerce and global consumption levels that will continue this year. One interesting trend that is emerging in lease pricing is the use of “To Be Determined” as the new asking lease rate.  With vacancy down to less than 4.0% and strong tenant demand in the region, we are finding that landlords are leaving asking prices open until discussions with a tenant are underway.
GlobeSt.com: What effect have issues related to labor and environment had on industrial development in the Inland Empire?
John: The primary effect has been length of time for developments to come to fruition. Based on increasing regulation, the process of entitlement now takes two to three times longer than in the past – and is two to three times more expensive. Total construction prices have risen due in part to Project Labor Agreements. In addition, there has been a rise in litigation under the California Environmental Quality Act, which is a contributing factor to increase in cost and time for developers. Despite these pressures, construction volume in the Inland Empire continues to increase at rates of 6% per year.
GlobeSt.com: How has eCommerce, and more specifically, Third-Party Logistic (3PL) expansion into eCommerce support, impacted existing and new industrial developments in the Inland Empire?
John: As commerce moves more and more online, the physical aspect of fulfilling orders remains, creating a need for more 3PL services. Industrial real estate development must adapt to keep up with this activity, with a specific focus on accommodating more trailer and container storage areas. In addition, 3PL’s expansion means more trucks on the road, which will contribute to increased infrastructure pressure in the Inland Empire.  This is already evidenced by an increasing number of pot holes, and combined with the State of California’s neglect of our infrastructure, is creating a new need for more frequent road maintenance.

SEE ORGINAL POST HERE:
http://www.globest.com/sites/kelsimareeborland/2017/04/12/industrial-rents-expected-to-jump-this-year/