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INLAND EMPIRE
INDUSTRIAL
For industrial developers and tenants looking for available
land, the Inland Empire is still the place to go in Southern
California but the entitlement process continues to get more
difficult as real estate becomes more scarce. The huge land
rush in the Inland Empire in the late 1980s and early ‘90s
never really subsided. In the last 6 to 7 years, developers
have built approximately 80 million to 90 million square feet
of industrial product.
“Today, there are approximately 1,500 acres of industrial-zoned
land left in the primary markets of the Inland Empire —
Ontario, Mira Loma, Chino, Rialto, San Bernardino and Redlands,
California,” says Peter McWilliams, senior vice president
at Colliers Seeley International’s Ontario office. “There
is approximately a 3-year supply of land left in those markets.”
The premium on real estate hasn’t stopped the influx of
businesses to the area. Companies continue to consolidate their
industrial facilities in Orange County and Los Angeles into
larger complexes in the Inland Empire. Of course, the demand
for Inland Empire land has dramatically affected real estate
prices. “With the increase in population in the Inland
Empire attracting large owner-users over the past 2 to 4 years,
land prices are reaching levels never seen before in the region,”
says McWilliams.
The demand is such that institutional investors are making forward-purchases
on industrial property, committing to buy buildings before developers
build them or tenants lease them. This can be attributed to
the lack of supply of quality net-leased investment product
and a continued strong big box leasing market in the Ontario
International Airport area, says McWilliams.
The majority of the Inland Empire’s industrial development
is occurring in the Ontario International Airport area because
of its solid, established industrial base. The submarket is
near most transportation routes including airport, rail and
the ports of Los Angeles and Long Beach. “Because the
area is so developed, businesses prefer locating there for both
ease of expansion or, if necessary, contraction,” says
McWilliams. “Since developers are building mostly on spec,
there is little risk in developing new product in this area.”
Other primary areas of industrial development in the Inland
Empire include Fontana, Rancho Cucamonga, Mira Loma, San Bernardino
and Chino.
The newest developers in the region are Robert Pattillo Properties
from Atlanta, The Alter Group from Chicago and Texas-based Hillwood
Development. Three years ago, Hillwood became the master developer
of the former Norton Air Force Base in San Bernardino, now known
as the AllianceCalifornia business park. The 2,000-acre property,
anchored by San Bernardino International Airport, is well positioned
for easy rail and freeway access. Hillwood sold 60 acres of
the business park to Kohl’s for a 651,880-square-foot
regional distribution center while Mattel just signed a 10-year
lease on a 1.25 million-square-foot build-to-suit facility there.
Other developers active in the Inland Empire include Catellus
Development, IDI, Lennar Partners, ProLogis California, Majestic
Realty, Panattoni Development Company and Patillo Properties.
Catellus is currently developing Kaiser Commerce Center in San
Bernardino, a property consisting of approximately 6 million
square feet of space on 588 acres.
Industrial developers in the Inland Empire continue to build
more large cross-dock or flow-through distribution facilities
than single-side loading dock facilities. Most new cross-dock
facilities range in size from 565,000 square feet to approximately
880,000 square feet with fairly deep building depths of 500
to 700 square feet.
“Users prefer the flexibility and efficiency that cross-dock
facilities provide with more dock space, as well as the increased
number of parking spaces for trailers,” says McWilliams.
Importers are driving the Inland Empire market with 95 percent
of the tenants in need of large distribution centers to service
the growing population. “The Inland Empire has excellent
access to freeways, rail and international transportation routes
as well as a good labor force,” McWilliams says.
Industrial rents in Ontario and Chino continue to escalate because
of the Inland Empire’s market dynamics, which include
limited land availability and high demand, the last of which
is fueled by the relatively low cost of drayage from the ports
and to the customers. The direct vacancy rate for industrial
properties is around 7 percent. McWilliams says that the Rialto,
San Bernardino, Redlands and Moreno Valley submarkets are the
ones to watch for the next wave of major development in the
Inland Empire because finished dirt prices there are approximately
half of what land costs in Ontario ($3 to $5 per square foot
versus $7 to $8).
Industrial activity will continue to expand east as far as Victorville
and Hesperia with several tenants, including M&M-Mars, Goodyear
Tire & Rubber Company and ConAgra Foods, having already
made the move.
“Businesses are becoming confident again and beginning
to review their 5- or 10-year plans and feel safe enough to
move off the sidelines,” says McWilliams. “[Low]
interest rates and large supplies of capital will continue to
drive development. After September 11, 2001, many tenants put
short term Band-Aids on their growth and relocation needs, but
we are finally seeing them commit long term again and the Ontario
airport submarket and Inland Empire are the beneficiaries of
that movement.”
©2003 France Publications, Inc. Duplication
or reproduction of this article not permitted without authorization
from France Publications, Inc. For information on reprints of
this article contact Barbara
Sherer at (630) 554-6054.
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