LA Eyes Industrial Wave In Secondary Markets
As workers hesitate to return to their now-dusty offices and a wave of hotel closures looms, CT Realty is preparing to start construction immediately on a nearly 4M SF logistics facility about 50 miles east of Los Angeles, in the Inland Empire.
The industrial sector in the Inland Empire — generally considered Riverside and San Bernardino counties — has been a success story for the last several years, but it received an extra boost from the coronavirus pandemic, as e-commerce became the safest way to shop. While the entire industrial sector has boomed simultaneously, experts agree that the Inland Empire has done especially well.
The Inland Empire added a staggering 9.6M SF of occupied space in the second quarter of 2020, making it the nation’s top-ranking market in terms of net absorption, said Eric Willett, director of research and thought leadership for CBRE’s Pacific Southwest Division. Though the reports for 2020’s third quarter aren’t in yet, some experts are predicting the IE will break records in terms of the number of new leases signed and absorption.
“Developing a project of this magnitude on a spec basis speaks volumes to the confidence we have in the overall market,” CT Realty Managing Partner Carter Ewing said in a statement.
CT Realty is developing the Jurupa Valley project in a joint venture with real estate firm PGIM, which purchased a $425M portfolio of industrial space in the South and Southwest last month, making a big bet on e-commerce in doing so.
Ewing said the first of the Agua Mansa Commerce Park's buildings is slated for shell completion in summer 2021. The four other structures in the initial phase of development would ideally follow every two or three months, but Ewing said that timeline depends on the market response to that first one.
“Our world was shook for the first month or so of COVID-19. Not panicking, but just hitting the pause button,” said Patrick Wood, managing director of JLL's Ontario office and an expert on the Inland Empire’s industrial market.
It didn’t take long for players in the IE’s industrial market to see that the pandemic would have a positive effect on their business, Wood said.
In the second quarter of 2020, the Inland Empire saw its 14th consecutive quarter of positive absorption, while other markets on the West Coast saw negative absorption, JLL reported.
The area has been particularly successful through the coronavirus pandemic for a handful of reasons, Wood said, among them the market’s large buildings. Those are desirable for distribution and fulfillment centers and attract high-credit tenants, like the multinational companies whose widely recognizable names appear on the sides of Sprinter vans driving the freeways that crisscross the IE.
With such strong momentum in the midst of a global crisis, it’s not surprising that there’s more logistics space in the pipeline. By CBRE’s count, another 19.9M SF of industrial space is under construction in the area. Only Dallas/Fort Worth and Atlanta are building more.
Developers and brokers seem confident that the demand for industrial and logistics buildings will remain high, regardless of or perhaps because of the effects the pandemic has had on how people shop and how quickly they expect to get their purchases.
“Over the past five or six years, we’ve seen very consistent, really strong growth with no flattening, no pullback, quarter over quarter,” JLL’s Wood said. “Everyone was wondering, 'Can this get any better?' It did, and it continues to improve.”
CapRock Partners, an industrial investor and developer with projects across the western U.S., secured entitlements for three projects during the pandemic, getting needed approvals from cities that used Zoom to hold public meetings digitally. Two of the projects are in Norco and will total 2.5M SF. There is also one in Fontana that will measure 1M SF.
“The sheer velocity of leasing activity has proven that we still are under-supplied as far as large big-box industrial product,” CapRock Partners’ Senior Vice President of Asset Management Nicholas Ilagan said.
In Jurupa Valley, CT Realty completed a long list of pre-development tasks prior to breaking ground this month: designing all the buildings and new streets that will run through some of the 206-acre site, and laying out utility and engineering plans. The developer wanted to be ready to pull permits right away, CT’s Ewing said.