Supply Chain Breaks Put New Spotlight On Central Valley's Potential

Supply chains being spread thin or broken entirely by the coronavirus pandemic have brought new scrutiny to inland California's industrial market.

Along with other inland hub markets like the Inland Empire and the Pennsylvania I-78/81 corridor, the Central Valley may benefit from a surge in business inventories and re-shoring spurred by companies' reactions to the coronavirus, CBRE concluded in a recent report.

As more manufacturers, wholesalers and retailers opt to store materials and inventories closer to consumers, space for all those goods is in high demand.

Suppliers will likely gravitate toward inland markets as opposed to space-limited and expensive seaport-adjacent markets, according to CBRE, which also points to e-commerce's continued growth as another likely boon for the sector.

"It's really securitization of the supply chain and avoiding supply chain disruption," said CBRE Executive Vice President Thomas Davis, who leads the company's Central Valley Industrial Practice group. 

"It has performed very well, and we expect it to perform very well going forward," Davis said of the Central Valley's industrial CRE market.

In its report, CBRE said the pandemic has highlighted how quickly issues can arise with just-in-time production networks, reversing a decades-long downward trend in inventory-to-sales ratios.

Such a reversal could cause industrial demand to surge in inland hub markets, CBRE Research said, projecting a 5% increase in business inventories that require 400M to 500M more SF of warehouse space.

Last month, Colliers International Senior Vice President Gregory Healy, an expert in location strategy and supply chains, said he expects a push for supply chain resilience to result in demands for 750M SF to 1B SF of industrial space in the U.S. alone.

Central Valley industrial CRE is likely moving forward from an already strong starting point. As in Southern California's industrial markets, the region has continued to see deal flow despite the pandemic, Lee & Associates Senior Vice President and Central Valley industrial broker Jim Martin said. 

Leasing and investment sales have stayed on track, according to Martin, who said he thinks there will probably be an increase in warehouse and distribution in the region as companies look to increase inventories.

“The Central Valley will continue to see migration/expansion from the Bay Area given the availability of land, labor and transportation,” Martin said in an email.

Martin, who just worked with Nearon Enterprises on acquiring the 155K SF Eastgate Business Park in Tracy, California, said deals like that one represent a telling commitment to the Central Valley. That industrial purchase was Nearon's first in the Central Valley, according to Martin, though Nearon didn't immediately respond to a request for confirmation. 

Davis and CBRE represented the seller of Eastgate Business Park, Indianapolis-based Scannell Properties, along with Martin.