WESTERN SNAPSHOT, DECEMBER 2004

Inland Empire Industrial Market

Chenoweth

The Inland Empire remains one of the fastest growing markets in the United States, with strong, continuous demand in the industrial sector. The Inland Empire industrial market covers approximately 485 square miles and comprises 3,982 industrial buildings and more than 285 million square feet.

High demand has caused land prices to substantially increase in the last 18 months. In Ontario, California, industrial prices have increased as much as 50 percent from $5 per square foot to $7.50 per square foot.

One of the largest planned industrial developments is Hofer Ranch in Ontario, just south of the LA-Ontario International Airport (ONT). A joint venture between Hillwood Development and the Hofer family, the 137-acre master-planned development will boast access to ONT taxiways as well as offer logistics facilities for airport-related uses.

Once an open canvas for big industrial developers, the western part of the region now has a limited supply of large, contiguous parcels of land, particularly around ONT, and is starting to be referred to as an industrial infill market, which has become conducive to small building-for-sale programs. Panattoni Development’s South Milliken Industrial Park in Ontario, which consists of 10 buildings ranging in size from 11,233 square feet to 36,720 square feet, is a good example of this growing trend.

Overall, investors and tenants looking for light manufacturing and distribution facilities will remain interested in Ontario and other western cities because of the established economic base, the incredible logistics infrastructure and the low development risk.

Industrial development is booming in cities farther east such as Rialto, San Bernardino, Riverside, Perris and Moreno Valley. One of the most significant developments is Meridian, a 1000-acre business park located adjacent to the 215 freeway in Moreno Valley. Developed by Lennar Partners, it is the first fully improved land sale program within a master — planned business park in the eastern Inland Empire.

The Inland Empire’s industrial market continues to be dominated by warehouse distribution users occupying buildings more than 100,000 square feet in size. Retailers and consumer product companies such as Wal-Mart and Target each currently maintain in excess of 3 million square feet of warehouse space throughout the Inland Empire, with Target on track to open another mega-distribution center in Rialto in 2005. New developers to the region include Alter Development from Chicago and Atlanta-based Oakmont Development.

Lease rates throughout the Inland Empire have increased in the past year while vacancy rates have declined. Large buildings (over 100,000 square feet) in the region are currently leasing for approximately $0.31 NNN per square foot compared to approximately $0.29 NNN per square foot a year ago. Vacancy currently stands at 7.65 percent. Some recent major transactions include a 600,000-square-foot lease by Leap Frog at Kaiser Commerce Center in Fontana; the Pep Boys lease of a 600,000-square-foot facility at Hillwood Alliance California in San Bernardino; and Black & Decker’s lease agreement for a 543,000-square-foot facility at the Prologis Park I-210 project in Rialto.

Developers and users looking for land can find it in the Inland Empire at affordable rates as compared to other areas in Southern California. With the sudden boom of land purchases in the eastern Inland Empire, it won’t be long before this area starts to see significant speculative development, much like the western Inland Empire did 15 years ago.

Walt Chenoweth is a senior vice president in CB Richard Ellis’ Ontario, California office.

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