Industrial expansion will continue eastward while several former Air Force bases vie to become logistics hubs.
Article by Andrea Rosas
Companies looking to the Inland Empire as a potential home for their industrial operations may be surprised to find that the abundance of available land that once defined the two-county region is quickly filling up. The demand for industrial space in the Inland Empire has remained strong for the past several years, even as industrial markets around the country struggled through tough economic times, real estate experts said. As a result, the economic engine that has driven industrial growth in the west end of the Inland Empire for the past decade is spreading throughout the rest of the region, according to Chuck Belden, senior vice president with Cushman & Wakefield's Ontario office. For three years, vacancy rates in the region fluctuated only slightly, largely remaining between 7 percent and 8 percent, according to the Casden Real Estate Economic Forecast produced by the University of Southern California's Lusk Center for Real Estate. For 2002, the Inland Empire industrial sector finished the year with a 7.3 percent vacancy rate. In addition, during the same period, lease asking rates rose by 25 percent from $4 per square foot annually to nearly $5, the report stated. "Finally, now we can say with confidence that there is a lack of supply of land," Belden said. "We have a barrier to entry - a strong demand but limited supply - which we've never had in the market. As a result, we will see a rise in sales prices and real value increase." The limited supply of space in the western portion of the Inland Empire is pushing industrial growth eastward along major transportation routes and to the north into the high desert area, experts said. Cities along those routes, such as Victorville and Apple Valley in the high desert, and Riverside, Perris and Moreno Valley in Riverside County, are quickly capitalizing on this expansion, Belden said. The former George Air Force Base in Victorville has taken advantage of its proximity along major transportation corridors between the ports of Los Angeles and Long Beach and the eastern United States to position itself as the next logistics core of the Inland Empire. Now known as the Southern California Logistics Airport, the 5,000-acre property touts its air, rail and truck access to draw big-name logistics and aviation users. In 2002, The Pasha Group of Corte Madera announced plans to build a $50 million rail and truck yard at the former base. The company will use the new facility to store cargo containers that land at the ports, officials said. Last year, Laguna Hills-based Stirling Airports International, the developer of the Southern California Logistics Airport, announced that it would team up with Catellus Development Corp. of San Francisco to develop more than 43 million square feet of space at the former base. Upon completion, the development, worth an estimated $1.5 billion, would be the largest commercial development in the Inland Empire, according to Dougall Agan, principal of Stirling. The airport's high desert location so far has attracted tenants such as British aircraft repair company BAE Systems, aerospace engine-maker Pratt & Whitney and General Electric Engines, officials said. According to Agan, the airport is in a position to improve the timeliness and cost effectiveness of goods moved from the ports to the eastern United States. "The first thing you have to look at is the ingredients of Southern California and the dynamic of it being a point of entry into the United States from Asia," Agan said. "Given the expected growth in California and the population increase, we will see an increase in the consumption of goods in Southern California, more cars being purchased and a tremendous growth in retail. This puts more demand on industrial distribution, and we are in a strategic position to meet this demand." Like all industrial development in the Inland Empire, institutional development is moving eastward to areas with more available land, according to Roger Rhoades, senior vice president with Grubb & Ellis' Ontario office. "Institutional folks are looking for big-box distribution facilities of 30 acres and above, and frankly, we have seen our land available for that type of development diminish rapidly," he said. "In the Inland Empire, we have about 1,700 acres total available from Chino all the way out to Moreno Valley." Rhoades said institutional companies are either buying existing sites or teaming up with local developers to look for locations in areas such as Redlands, Perris and Moreno Valley.
Base Competition
The Southern California Logistics Airport is not the only former Air Force base in the Inland Empire looking to seize upon the growing demand for industrial space. Officials are beginning to develop industrial uses at both the former Norton Air Force Base in San Bernardino and March Air Reserve Base in Riverside, according to Rhoades. Dallas-based Hillwood Investment is developing 2,000 acres at the former Norton Air Force Base into an industrial park, dubbed AllianceCalifornia. In 2002, Kohl's Corp., a Wisconsin-based discount retailer, built a 651,880-square-foot distribution center on the site to facilitate the launch of its Southern California stores in March. Officials at March Air Reserve Base are in the process of securing electricity and improving infrastructure for potential industrial development, but it could be two years before the site begins to deliver product, Rhoades said. A 2,400-acre site next to March Air Force Base in Riverside also is being developed into a commerce and industrial center. Lennar Partners is the master developer. Although the three former Air Force bases have promoted their sites as the next hub for industrial development, according to Rhoades, it remains to be seen which base, if any, will take the top seat. "March is still an active base, and it is common sense that it may or may not be completely developed for industrial use because it is still being used by the military," he said. "Norton recently completed the Kohl's warehouse, and it was a nice addition to jump-start development, but other than Kohl's, it has been slow out there." Major companies may be reluctant to locate at Norton because of the distance from the Ontario International Airport and retail outlets to the west, Rhoades said. Likewise, companies may think twice before making the move to the high desert, he said. "Companies will locate near the airport if they can," he said. "Major retailers have to understand their requirements in terms of trucking and how much merchandise they are shipping and the value of the merchandise they are shipping. If the value is high, they are looking for a rapid turnover where they can move merchandise rather quickly."
The Attraction of Cheap Power
According to Rhoades, the city of Riverside has proved appealing to industrial users, especially those that are high users of electricity. In the past year, companies with high electricity requirements have rushed to Riverside to take advantage of the savings offered through its municipal utility, Rhoades said. The city's utility rates, which are 60 percent lower than those of Southern California Edison on a straight comparison basis, have attracted plastics companies, cold storage companies and commercial printers to the area, said Kevin Palmer, economic development manager for Riverside. Quebecor World, the world's largest commercial printer, signed an agreement to occupy 196,000 square feet at Space Center Sycamore Canyon in Riverside. The company will relocate from its existing facility in Ontario when the project is completed in the first quarter, officials said. Investment Building Group, a Newport Beach-based developer, will complete the first phase of its 48 Sycamore Canyon Project in the third quarter of this year, Palmer said. The $10 million speculative industrial park, built on 14 acres, will consist of three buildings ranging in size from 42,000 square feet to 150,000 square feet. Some city officials are concerned that the strong demand for industrial product in Riverside could leave the area with little available product in the coming years. "These current projects are very critical because we don't want to find ourselves with no product available for immediate occupancy," Palmer said. "We are trying to work with developers to get them into the market as quickly as we can, expedite the plan-check, meet infrastructure needs and basically do anything we can do to facilitate this."
Next Generation
As land becomes more and more scarce, there will be opportunities for second-generation leasing of older buildings in cities such as Ontario and Rancho Cucamonga, Rhoades said. The lack of available land will also stimulate growth in communities such as Perris, Moreno Valley, Rialto and Colton, he said. According to Agan, industrial growth will follow infrastructure improvements. "You have to see where the goods are traveling and where the roads are being improved," he said. "Infrastructure enhancement on the 15 and 210 freeways, and the new 18 freeway in Victorville will create dramatic growth in those areas."