Last year was a record year for large warehouse leases, with the Inland Empire ranking third nationwide with 10 leases of 1 million square feet or more, CBRE reports.
The real estate brokerage attributes the surge to a rebounding economy, increased e-commerce sales and changes to supply chain strategies that called for additional warehouse and distribution space.
“Strong retail sales and the need to hold more inventory close to consumer markets increased the average transaction size,” the report says. “A record 57 transactions in 1 million square feet or larger facilities were signed last year — 19% more than in 2020.”
The Inland Empire’s 10 biggest leases totaled 10.2 million square feet.
Economist John Husing likens the growth in warehouse construction to the old-school video game Pac-Man.
“It looks like the Inland Empire is about to eat up the rest of Southern California,” he said.
Last year, 22.8 million square feet of warehouse space was absorbed in the two-county region, Husing said, and 22.5 million square feet of warehouse space was under construction in December 2021.
The fulfillment and e-commerce distributor Lecangs has leased a 1,203,449-square-foot distribution facility in Perris. The company is a division of Loctek Ergonomic Technology Corp., which makes ergonomic products under the brand Flexispot. (Courtesy of Cushman & Wakefield)Cushman & Wakefield signed a lease last month on a new 1.2 million-square-foot distribution facility in Perris developed by Duke Realty Corp.
“Industrial demand has been growing rapidly in the last year and the market has been extremely competitive,” said Chuck Belden, a vice chairman with Cushman & Wakefield’s Inland Empire office. “Buildings do not remain available on the market for very long, with some being preleased even prior to construction, as well are being leased at high rental rates.”
Only 18 of the top 100 U.S. transactions in 2021 were renewals, CBRE said — a sign that demand is coming from a range of businesses with an expanding appetite for big spaces.
The demand is expected to continue in 2022, although the report notes a dwindling supply of large facilities in core markets that are running out of available land for development.
“As such, look for more of the top 100 leasing deals in emerging markets near major logistic hubs and growing population centers like Phoenix, Greenville/Spartanburg, S.C., Louisville and San Antonio in 2022,” CBRE said.
Chicago topped CBRE’s list, with 12 lease transactions in 2021 totaling 12 million square feet. The I-78/81 freeway corridor in Pennsylvania ranked second with 11 transactions, although they collectively accounted for the biggest total space at 12.4 million square feet.
The Top 10 list was rounded out by Dallas/Fort Worth (nine transactions), Atlanta (eight), Indianapolis (six), Phoenix, Columbus, Ohio and central New Jersey (five each) and Greeville/Spartanburg, S.C. (three).
Room to spare
Husing said the Inland Empire has room to spare for warehouse growth, which is gradually pushing its way out into Moreno Valley, Beaumont, Banning, Apple Valley and Victorville.
“It will take some time to fill all of that up,” he said.
Most of the activity has been fueled by a surge in e-commerce as more and more consumers have opted to buy online during the COVID-19 pandemic. It’s hiked the price of industrial leases as a result.
“If you look at the cost-per-square-foot of what they are asking in the Inland Empire, it was 57 cents a square foot in 2018,” Husing said. “It was 61 cents a square foot in 2019 and 60 cents a square foot in 2020. But that jumped to $1.07 a square foot in 2021.”
Source: Orange County Register