Inland Empire industrial market shows signs of bottoming out

What does this jerk think he knows?

Inland Empire industrial market shows signs of bottoming out

The industrial landscape of the Inland Empire is dominated by large distribution centers that serve as the economic backbone of the region. Since the onset of the global recession in late 2007, the industrial market has shed 14.3 million square feet of industrial space as retailers and distributors contracted as economic conditions soured. Over this same time period, the unemployment rate has increased from 5.2 percent to 13 percent.

For the current quarter, the vacancy rate for industrial space in the Inland Empire has continued to rise and now stands at 15.1 percent. Weighted average asking rents have continued to decline for the fifth straight quarter to 36 cents per square foot NNN, the lowest asking rents in the Los Angeles Basin.

Sales and leasing activity totaled 5.9 million square feet as several large transactions occurred in the last three months. Trader Joe's purchased a 574,000-square-foot building in Fontana and IDS leased 645,300 square feet in Mira Loma. Sales and leasing activity has been steadily increasing over the past year but has not been enough to stem the tide of industrial losses that has continued to plague the region. Net absorption, a measure of real estate demand, was negative 2.3 million square feet in the second quarter of this year.

Despite the decline in industrial demand the region has faced over the past two years, many are seeing signs that the market is beginning to bottom out.

We are still seeing vacancy rates rise as businesses continue to cut costs and shrink operations, but without question leasing activity is better than last year when nobody knew what was going on or who was going out of business" says Jeff Bellitti, Associate Vice President of Colliers International.

"Companies are starting to plan for growth after years of cutbacks. We just have to turn these plans into actions. It is going to be slow at first, but slow is better than backwards, which is what last year was," says Bellitti.

Positive indicators for the region include rising port volumes, which have increased steadily since they reached their lowest monthly total in over nine years in February.

Other positive indicators include a rise in the national Purchasing Managers Index (PMI), which increased to 44.8 in June, edging closer to the 50 needed for economic growth. Locally, the PMI for San Bernardino County as reported by the Institute of Applied Research at Cal State San Bernardino was at 51.8 in June, indicating that the economy has already bottomed out and is beginning to recover.

While it is still too early to state with absolute confidence that the economy is growing, and jobs along with it, conditions are improving over what they were last year, or even last quarter.