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2020 North America Industrial Big Box Review & Outlook

Inland Empire
March 22, 2021

“The Inland Empire is one of the largest big-box industrial markets in the U.S. The majority of its industrial base is Class A distribution space in a highly concentrated 30-mile radius area. The region adds between 10 million and 25 million sq. ft. of new space annually that is absorbed by Fortune 500 companies. The Inland Empire has excellent infrastructure with major freeways, three large airports and multi-modal/inter-modal railways.”
Dan de la Paz – Executive Vice President

Demographics

16.3 million people live within 50 miles of the Inland Empire (IE) core, the second highest industrial market population in the country, behind Northern/Central New Jersey. 26.3% is in the 18-to-34 age demographic, which ranks first in the nation. Population is expected to grow 2.3% over the next five years. Close to 30 million people live within 250 miles of the market, generating a significant amount of industrial demand. The IE is second in North America behind Northern/Central New Jersey in total households within a 50-mile radius of the market core (5.2 million).

Figure 1: Inland Empire Population Analysis

Source: CBRE Location Intelligence.

The large population gives the Inland Empire one of the largest big-box industrial labor forces in the country. According to CBRE Labor Analytics more than 100,000 people are employed in the warehouse industry. This is expected to grow 25% by 2030. The average hourly wage for a non-supervisory warehouse worker is $15.06. While this is 7% higher than the national average, it is the lowest hourly wage for a major industrial market in California.

Figure 2: Inland Empire Warehouse & Storage Labor Fundamentals

Source: CBRE Labor Analytics.

Location Incentives

Over the past five years, there have been 59 economic incentives deals totaling more than $37 million at an average of $7,883 per new job in the Inland Empire, according to Wavteq.

According to CBRE’s Location Incentives Group, the top incentive programs offered is the California Competes Tax Credit, which is a discretionary income tax credit awarded to businesses that locate or expand in California. This program was extended through 2023 with $180 million in tax credits available for allocation to businesses that make capital investments, create new jobs and offer strategic importance to the region. The credits are non-refundable and companies can only apply during designated application periods held three times each year.

Figure 3: Inland Empire Top Incentive Programs

Source: CBRE Location Incentives Group.
Note: The extent, if any, of state and local offerings depends on location and scope of the operation.

Logistics Driver

The market is close to the ports of Los Angeles and Long Beach, the two largest ports in North America. The large amount of imports flowing into these ports directly feeds the region's big-box distribution warehouses. COVID-19 restrictions led to fewer imports in the first half of 2020, but significant improvement the second half of the year kept port-related demand strong.

The market possesses logistics advantages from the air, ground and rail. Ontario International is quickly becoming one of the top cargo airports in the country. According Aviation Pros, air cargo volume into Ontario increased by 21% in 2020, the highest growth rate in the continental U.S. Ground transportation is a key to the market’s success. Interstates 10 and 15 pass through, giving the region direct access to the entire country. Rail also is an option, as both BNSF and Union Pacific service the market.

Capital Markets


"2020 was another banner year for the IE, making it one of the nation’s top industrial markets. Fully entitled land remains difficult and time consuming to secure and trades at a premium as developers look to build more product. The boundaries of East IE continue to push out to Beaumont, Banning, Hesperia and Victorville as large land parcels become harder to find. Cap rates compressed throughout the year with some deals trading in the mid-3% range. The IE is poised for a very good 2021 as investor demand remains strong."
Darla Longo – Vice Chairman

Figure 4: Cap Rate Comparison

Source: CBRE Research.

Supply & Demand

With 359 million sq. ft. of total supply, the Inland Empire is the fifth largest big-box industrial market in North America. 42.5 million sq. ft. was transacted in 2020, the most for any North American market. Demand was driven by 3PLs, which accounted for 34.5% of the total deals in 2020. Transaction activity increased by 21% year-over-year in 2020 and net absorption increased by 40% to 25.1 million sq. ft.

Despite robust demand, construction completions fell by 14% last year to 16.2 million sq. ft., as fewer land sites were available. Less completions and more activity lowered the direct vacancy rate by 1.2 percentage points to only 3.1%. The market will further tighten in 2021 as only 11.2 million sq. ft is under construction, 25.5% of which is preleased. Robust fundamentals have led to an increase in taking rents. The average first-year taking rent in 2020 was $6.56 per sq. ft., 6.8% higher than in 2019. As the market continues to tighten, look for vacancy rates to drop below 3% and rents to increase at a quicker pace.

Figure 5: 2020 Occupier Transaction Market Share

Source: CBRE Research.

Figure 6: Transaction Volume

Note: Includes new leases, renewals, and user sales transactions 200,000 sq. ft. and above.
Source: CBRE Research.

Figure 7: Big Box Year-Over-Year Data Comparison

Source: CBRE Research.

Figure 8: Under Construction vs. Preleased

Source: CBRE Research.

Figure 9: First Year Taking Rents (psf/yr)

Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research.

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2020 North America Industrial Big Box Report & Outlook

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Contacts

James Breeze
Senior Director, Global Head of Industrial & Logistics Research
Research
+1 602 735 1939
Matt Walaszek
Director of Research
Research
+1 312 297 7686
John Morris
Executive Managing Director, Americas Industrial & Logistics and Retail Leader
Advisory & Transaction Services
+1 630 573 7020
Richard Barkham, Ph.D.
Global Chief Economist & Head of Americas Research
+1 617 912 5215
Spencer Levy
Chairman, Americas Research & Senior Economic Advisor
+1 617 912 5236