Developers Looking To Desert Markets' Welcoming Communities And Open Spaces

In the second quarter, Inland Empire industrial absorption went negative for the first time in 20 years, an indication that a return to pre-pandemic norms is in progress.

But as the still-hot market slows, some industrial developers are turning their attention to adjacent markets where pricing is lower and local officials and residents aren’t working to pause new projects, panelists at a Bisnow event said. 

"There's still an appetite for growth from the local jurisdictions" in the desert markets, Newcastle Partners Development Manager Courtney Smith told the audience at Bisnow's Inland Empire and Desert Markets Deep Dive event at the City Club LA.  

Newcastle Partners entered the market with a project in Hesperia, one of the cities usually considered to be part of the high desert. 

"It's a lot more appealing to be in a market where they want you there and the cities are willing to work with you," Smith said. "So we've seen that through our first project in this area and are trying to get a couple more in that area." 

The proliferation of warehouse projects in all phases of completion has caused several Inland Empire cities to attempt to restrict new warehouse projects. Community pushback against new projects added a layer of uncertainty to a market that was already very expensive to enter, causing some occupiers to look elsewhere. Parts of the high desert have been beneficiaries of those dynamics and very well could continue to be. 

Moratoriums are still playing into the decision-making for industrial developers and investors. Clarion Partners and EBS Realty Partners bought a 19-acre site in Colton after that city's moratorium expired in May. 

Business-friendliness aside, the area isn't without its own challenges, panelists said.

"The biggest challenge we see is getting either labor there or power," McCarthy Building Cos. Executive Vice President Jim Madrid said, speaking of his experience in the Inland Empire and desert markets, from San Bernardino to Riverside and east toward Palm Springs.

But he also said that there are a lot of possible solutions, and the opportunities outweigh the potential challenges. 

The infrastructure in some of these areas had been "somewhat neglected" in previous years, Madrid said, but "now they're recognizing with their growth, they've got to improve that."