As technology advances and Covid-19 has forced ordinary habits to change, the demand for warehouse, distribution and manufacturing centers has increased. In the Inland Empire, industrial vacancy reached 2.7 percent—a historic low according to a JLL market report— by the end of the first quarter. As a result, industrial development has boomed in the Inland Empire. The Inland Empire East alone had 14.5 million square feet of industrial space under construction as of last quarter.
The demand seen is not surprising. The industrial real estate sector has proven its ability to weather economic downturns in the past, including with the Covid-19 pandemic. As a result, increased interest from investment groups has helped spearhead growth. The JLL market report reports that the annual total of e-commerce deliveries has more than tripled in the last five years. For the Inland Empire, this demand equates to increased industrial development, which in turn will impact residential and commercial real estate. This will likely mean a stronger economy with an expanding workforce.
The Demand for Industrial Development
The major financial institution, Deloitte, predicts that industrial real estate investment demand will increase to 14.8 billion square feet by 2023— a 850 million square feet increase. The JLL market report expects demand to surpass 1 billion square feet by 2025. The demand for industrial development is in response to the growth in e-commerce and delivery services. As Covid-19 has kept consumers in their homes, grocery delivery and online shopping have become the norm. Industrial spaces are seeing greater demand in dense urban environments so operators can get closer to the consumers and cut back on delivery times. However, locations near truck routes are also necessary to ease cross-country transportation and provide more efficient networks for goods to traverse.
Industrial Real Estate Development
To fulfill the growing demand, the Inland Empire Black Creek Group has announced 1.7 million square feet of Class A industrial space to be built in the Etiwanda Commerce Center and Riverside Logistics Centers.
In addition to building new industrial facilities in undeveloped areas, corporations are also buying abandoned retail and office spaces. With the growth of e-commerce and teleworking, office spaces and retail strip malls are sitting empty. Investors are purchasing these commercial properties, tearing the buildings down and erecting warehouse, distribution, and manufacturing centers. Further incorporating them into densely populated areas, bringing new jobs and more efficient transport of goods.
Opportunities for Industrial Real Estate Investment
For investors and developers, the demand for new industrial real estate space brings new opportunities. Particularly with last-mile facilities, locations in highly populated urban markets have a higher rent cost. However, the need for large logistical centers in suburban areas also presents an opportunity for industrial development. As demand increases, new companies are looking for industrial space, while existing companies are looking for additional locations or larger locations to fulfill the growing demand. In addition, the movement of people away from the Los Angeles area and into the suburbs of the Inland Empire means last-mile facilities in suburban areas are necessary. These factors create a fantastic opportunity for businesses looking to invest in the changing landscape of the Inland Empire.
Increased Demand for Workers
The increase in demand for space to store, process and fulfill online orders also brings a high volume of new jobs for both skilled and unskilled labor. As more able workers move out of the surrounding cities into the suburbs of the Inland Empire, the influx in workers can fill the need for industrial development. This allows for a greater economic output for the Inland Empire and a higher number of monetary resources put back into the economy.
For the past several years, commercial real estate trends have shown that the industrial market has been their top performing industry, and will likely continue to be. If behavioral changes continue as they have for the last five years, these trends will continue to work in favor of industrial real estate investments.
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