Inland Empire First In Nation For Big-Box Industrial Transactions In 2020
While all areas of industrial did a brisk business in 2020, the big-box industrial facility — a warehouse or distribution center measuring 200K SF or more — was a standout, both nationally and locally.
The Inland Empire had transactions totaling 42.5M SF in 2020, the most of any market in North America, CBRE's 2020 North America Industrial Big Box report found. That number represents a 21% increase over 2019’s transaction numbers. Net absorption was up 40% from 2019 to 25.1M SF, and the average first-year taking rent was $6.56 per SF, 6.8% higher than in 2019, according to the report.
Demand in the IE was driven by third-party logistics companies, which accounted for 34.5% of the total deals in 2020, the report found. General retail and wholesale companies accounted for 28.8% of the deals, and 20.9% of lease transactions were solely e-commerce occupiers.
All three categories are represented in the top leases signed in the area in 2020, according to CoStar data. The biggest, signed by shipping supply company Uline, was for just over 1.25M SF for an under-construction building in the Ontario Ranch Logistics Center where the company will consolidate its distribution, CoStar Senior Market Analyst Rafael De Anda said.
All Ways Logistics and Go Plus Logistics, both 3PLs, leased 1.1M SF and 1.09M SF, respectively. The home goods company RH signed a lease for just over 1M SF, and retailer T.J. Maxx inked a lease for 991K SF at a building vacated by Pier 1 in early 2020.
Looking at the largest leases doesn’t always tell the story of the larger trends at play, De Anda said. Sometimes they are just anomalies, but in this case, the top leases of 2020 offer up an accurate snapshot of what played out over the last year in the IE across the market, not just in the big-box world, De Anda said.
“We saw a lot of leasing from 3PLs, and we didn’t just see it in these largest leases, but we saw it in midsized buildings as well,” De Anda said.
Industrial landlords in the Inland Empire had a great year in 2020, but it was a frustrating one for occupiers, said CBRE Executive Vice President Daniel de la Paz, a 23-year veteran of the IE’s industrial market.
In the past, there was more than enough space and plenty of places to build, especially the large desirable parcels that set this area apart from more infill markets of LA and Orange County. But now, those industrially zoned parcels have by and large been built on. In 2020, construction completions dropped by 14% to 16.2M SF, as fewer land sites were available, according to the report.
When the pandemic created a sudden and great desire for more space to support e-commerce and companies looking to build up their inventories to avoid shortages, they met a market that didn’t have a lot of oversupply but did have a lot of demand.
“Before, companies wanted to negotiate and work out the best deal. But now, they’re just doing whatever it takes to secure the space,” de la Paz said.
CBRE forecast that the market will further tighten in 2021, as only 11.2M SF is under construction and 25.5% of that 11.2M SF is pre-leased.
“As the market continues to tighten, look for vacancy rates to drop below 3% and rents to increase at a quicker pace,” the report’s authors predicted.
