California Industrial Region Marches toward Recovery

By Smith, Noah | International New York Times, August 6, 2015 | Go to article overview

California Industrial Region Marches toward Recovery


Smith, Noah, International New York Times


The Inland Empire region, which includes San Bernardino and Riverside Counties, is experiencing a boom in warehouses and logistics centers.

The Inland Empire could be considered Southern California's backlot, with its vast warehouse complexes and staging areas.

Typically defined as the region east of Los Angeles and Orange Counties, and encompassing San Bernardino and Riverside Counties, this area of industrial development has been on a long march to recovery since the 2008 financial crisis.

Tens of millions of square feet of warehouse and logistics space have been built since 2011, and tens of millions more are on the way.

By almost 10 million square feet, it had the most industrial space under construction in the second quarter of this year in the United States, according to CoStar, a commercial real estate market research company.

Yet the region, which during the recession was a cautionary tale of overdevelopment and speculation, had the least amount of preleased space out of the top 20 markets in the first quarter of this year, with 22.9 percent, and the second-least out of the top 10 in the second quarter with 32.5 percent, according to CoStar.

But this time, few in the industry or the local government say they are concerned.

The ports of Los Angeles and Long Beach are busy, and major corporations are building warehouses, so-called fulfillment centers and logistics centers to accommodate the growth.

In this industrial real estate market, the vacancy rate is about 3.7 percent in the western parts of San Bernardino and Riverside Counties, and about 6 percent in the eastern part, both below the national average of 6.8 percent.

"All our projects are experiencing a high level of interest," said Brandon Birtcher, the chief executive of Goodman Birtcher, a development and investment group.

Goodman Birtcher recently leased 1.6 million square feet of space to the Georgia-Pacific Corporation in Rancho Cucamonga, Calif., and has 4.5 million square feet under construction or recently completed in the region.

Mr. Birtcher's confidence in the fundamentals of the market is typical of developers, local government officials, real estate agents and, actually, opposition figures.

The Inland Empire region has chalked up quite a few negatives. Its poverty rate is exceptionally high by national standards; both counties were rated as having poor air quality and given an "F" score by the American Lung Association this year; and traffic is horrendous.

Still, the region has relatively inexpensive land, is close to both of the nation's busiest port complexes and within reach of more than 23 million consumers.

With transportation costs projected to increase and technology helping to bring down the costs of both manufacturing and processing, corporations have begun moving their warehouses and logistics centers back toward areas with more people.

"The huge population in Southern California drives a lot of growth, a lot of cargo remains here, so the Inland Empire is a major distribution hub," said Philip Lombardo, executive vice president and managing broker at the Inland Empire branch of Cushman & Wakefield. "The market is hitting on all its cylinders."

The rise in e-commerce and improved methods of distribution have spurred companies to build new, more efficient buildings.

"Most of these are not the old-style building with 30 to 60 employees," said Thomas Taylor, senior executive vice president at Colliers International.

Companies "are customizing their orders with fairly large pick- and-pack sections that employ more people," he said. "Warehouses are like the new manufacturing."

Among the corporations that recently moved into a fulfillment center warehouse in the area is Amazon, the giant online retailer. …

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