GlobeSt.com Exclusive: Distribution Facility Demand Up Thanks to Port Activity
Distribution Facility Demand Up Thanks to Port Activity
By Natalie Dolce | Inland Empire
RIVERSIDE, CA—Despite a lack of inventory, the second quarter still posted strong activity and gross absorption. That is according to a recent Q2 industrial market survey for the East Valley Market in Southern California’s Inland Empire that GlobeSt.com recently got a sneak peak of from brokerage firm Lee & Associates.
The summary reports that despite a lack of inventory, the second quarter still posted strong activity and gross absorption. This trend continued on the heels of the great absorption performances in 2014 of 11.4 million square feet and 2013 at 14.8 million square feet.
Gross activity in the second quarter was just over 10 million square feet, with investment purchases and lease renewals accounting for 57% of the total. Demand for distribution buildings continues to keep pace with new supply due to increased port activity, with the main gate of the port being open 24/7, and increased demand from construction supply companies, as new home construction is becoming more active, and residential building permits are on the rise, the report says.
Given these factors, demand for industrial buildings in the Inland Empire’s East Valley is poised to continue to keep pace with new supply. Second quarter 2015’s absorption figures were just under 4.3 million square feet, bring YTD absorption to 7.5 million square feet.
Lee & Associates Riverside president David Illsley says he expects the trend to continue through the year.
Vacancy rates decreased in the second quarter to 4.65%, exhibiting a tightening market given the 2.1 million square feet of new construction completed in the quarter. Vacancy rates have now been on a declining path for five years from when they reached their peak at almost 20% in 2009.
The remainder of 2015 is projected to show a stable vacancy rate, given continued demand and a projected moderate increase in new supply. Speculative new construction on smaller buildings under 100,000 square feet are on the horizon.
Quality product is still extremely difficult to find and obsolescent buildings continue to be purchased for land value, and slated for demolition and development of new projects.
Average asking sales prices per square foot increased in the second quarter with the supply of buildings offered for sale remaining limited. The market upswing in actual sales prices started in 2014 in the East Valley, and sales prices are expected to show a steady upward trend throughout 2015.
The base for the second quarter represented 13.9 million square feet under construction, with 100% of the total in the 100,000+ SF range, a 16.9% increase over the previous quarter. Six buildings Gross Activity vs. Absorption completed construction in the East Valley in the second quarter, with nine new buildings projected to be completed in the third quarter of 2015.
The second quarter summary found that new construction on both a build-to-suit and speculative basis will continue in the region for large, big box type product. In addition, development interest is starting to formulate on smaller product as well, as rental rates and sales prices are beginning to justify new construction. The area will remain a new construction hot spot for some time.