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Speculative industrial building in the Inland Empire still surges

While speculative industrial construction has yet to recover in San Diego County, in the Inland Empire counties of Riverside and San Bernardino, nearly 15.4 million square feet is being developed -- with millions more planned.

Voit Real Estate Services reports that at least 90 percent of the 15.4 million-square feet underway, and a comparable percentage of the 9.1 million square feet delivered in 2013 in the Inland Empire, is or was speculative construction.

Voit said the 5.4 million square footage currently under construction matches the Inland Empire's level of absorption last year.

Leasing activity, as high as it might seem to observers, was relatively low throughout 2013 compared to previous years.

Voit attributed this to a lack of supply in those higher-size ranges that have been in such demand.

On top of current construction levels, some 60.7 million square feet is somewhere in the planning stages in the Inland Empire, although not all of that will be constructed.

Jerry Holdner, a Voit vice president of market research, said while there is a danger of building too much industrial space, isn't an issue yet.

Holdner said unlike San Diego County, the Voit report said most of the Inland Empire buildings under construction are 500,000 square feet and larger to meet the demand.

One of those companies fueling the demand is Amazon.com Inc. (Nasdaq: AMZN) which continues to grow in the Inland Empire.

In October, the online retail giant signed a lease for 1.25 million square feet of distribution space in Moreno Valley, in addition to 950,000 square feet Amazon occupied in San Bernardino at the end of 2012.

The next largest lease in terms of square footage during the past year was a lease renewal by Jarden Consumer Solutions for 826,560 square feet of distribution in Fontana.

The Inland Empire's overall average industrial lease rates were unchanged year over year, at 39 cents per-square-foot.

Some projects now under construction in the Riverside/Moreno Valley area include 582,772 square feet in the Alessandro Business Center in Riverside, 579,708 square feet in the Perris Logistics Center in Perris, and the 555,670-square-foot First Thirty-Six Logistics Center in Moreno Valley.

Buildings under construction to the north in communities such as San Bernardino, Chino and Banning tend to be larger.

The largest projects in these communities include a 1.43 million-square-foot complex being built within the Empire Gateway in Chino, a 779,052-square-foot complex also within the Empire Gateway footprint and 786,984 square feet in the Banning Industrial Park in Banning.

Major owner/developers in the Inland Empire include such names as ProLogis, Trammell Crow, Co. and O'Donnell Group Inc. among others.

Despite all the construction, the 2013 vacancy rate declined and ended at 5.16 percent.

Unlike San Diego County, where the reverse is true, Holdner said per-square-foot land prices, which vary widely according to location, are actually higher when the buildings are larger than 500,000 square feet.

"These lots are at a premium because so many want them," Holdner said.

The availability rate, which combines the direct rate with the sublease space, amounted to 8.15 percent at the year's end, a nearly 27 percent decrease from 2012.

"We expect availability to continue its descent in the coming quarters," Holdner added.

The Voit report said due to that lack of availability in the larger sizes, leasing activity amounted to 5.3 million square feet in the fourth quarter, compared with 6.2 million square feet in the prior quarter.

Inland Empire sales activity in 2013 totaled 16.1 million square feet of sales transactions compared to 2012’s total of 12.7 million square feet.

The report stated Voit expects to see moderate increases in leasing and sales activity in 2014, as job creation continues, unemployment rates drop and consumer confidence stabilizes.

Southwest Riverside County, which was hammered during the recession, was supposed to see the emergence of the March Global Port, a planned 350-acre business park adjacent to the southern end of March Air Reserve's 13,000-foot runway.

While the developers known as March International Logistics Center LLC built a more than 300,000-square-foot facility for DHL in 2005, the carrier was out of the building by the end of 2008.

There were multiple reasons for DHL's departure including the economy, and legal actions over noise and a fuel farm.

After new ownership, new paint job and numerous leases, the building has reportedly been mostly refilled.

Other things have been happening around March; most notable is the March Lifecare Campus designed to assist veterans with housing, hospitalization, retail and other services.

At an estimated cost of $3.3 billion, March LifeCare will be a 6 million-square-foot, 236-acre “health and wellness city” built on surplus land of March Air Reserve Base, which converted from active-duty to reserve status in 1996.

Along with access to the base's 13,000-foot runway, March is located within a free-trade zone, accessed by freeways and rail lines, and noted that it is within 70 miles of the ports of Los Angeles and Long Beach.

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