Inland Empire's White-Hot Warehousing Sector Cools

INLAND EMPIRE, CA — The Inland Empire's robust warehousing sector has cooled, and it remains to be seen how 2024 will pan out.

"For years the growth of warehousing in the Inland Empire was relentless. ... But now that’s come to a halt — bringing uncertainty for thousands of workers and an industry that has been an economic bellwether for the region," a Feb. 21 Los Angeles Times article read.

Warehouse development has slowed in the IE, though vacancies are still low. Nowadays, lease agreements are structured in the tenant's favor, with a dip in rent of about 10 cents a square foot compared to a few years ago when the region's industrial real estate market was on fire, according to an industrial real estate agent who spoke to Patch but asked not to be named.

The IE remains one of the nation’s top markets for industrial space, but after a surge in expansion due to the pandemic, it has begun to correct itself, according to the real estate advisory firm of Avison Young.

"Leasing activities have trended downwards with many occupiers putting a halt on expansion efforts and instead are relinquishing any unused space that was acquired during the pandemic," according to findings in AY's Q4 2023 Inland Empire industrial real estate market report. "Lease rates continue to remain at all-time highs, but the rate of growth has plateaued with average asking rates remaining flat in the fourth quarter ... ."

The Los Angeles Times reported that warehouses and distribution centers have shuttered in Rialto, Fontana, Jurupa Valley, Perris and Chino, among other cities.

Inland Empire warehousing space is still sought, but demand stems from very large e-commerce and logistics companies, according to AY. In the fourth quarter of 2023, Maersk inked a deal for a 1.2 million-square-foot distribution warehouse in Hesperia. High-dollar agreements were also struck in Cherry Valley and Beaumont during 2023.

The health of the IE's industrial real estate market is an indicator of other sectors' well-being. FreightWaves reports on logistics. It ran a November 2023 article titled, "Layoffs and bankruptcies pile up in logistics amid shocking downturn."

On a national level, "there have simply been too many trucks for too little freight," according to the FreightWaves article, which also ticked off a long list of logistics companies that recently folded, including three in California.

In January, UPS announced it would cut 12,000 jobs nationwide.

Truck transportation is down, "and the [IE's] wholesale trade employment is dropping fast," the Times reported, citing year-over-year data from the U.S. Bureau of Labor Statistics.

In part, the slowdown is due to changes in consumer spending. When the country opened up after the pandemic, consumers indulged in travel and entertainment instead of goods. The high cost of products due to inflation has also factored in, and labor problems at Southern California ports have hampered the industry, according to the LA Times report.

Not everyone is bothered by the region's warehousing sector slowdown. Environmental concerns by citizens and watchdog groups have delayed some projects, though developers often promise more efficient distribution centers and cleaner technologies, along with jobs, jobs, jobs. Those jobs, however, are often lower-paying, and upcoming technological advancements could mean less demand for high headcount.

Developers are fairly bullish about the future of the IE's warehousing sector. Iddo Benzeevi, chief executive of Highland Fairview, a developer working on a massive logistics center in Moreno Valley, told the Times that the key drivers of growth remain intact in the region: e-commerce, global trade, and demand for larger, more efficient distribution centers.