Lee & Associates – Ontario | 3Q22 Industrial Market Report

THROUGHOUT THIS PAST QUARTER, market elements have begun to shift affecting many aspects of the real estate industry. When compared to past unprecedented quarters, some see change as a concern, when historically, the Inland Empire Industrial Market is still as tight as ever.

With vacancy under one percent (0.67%), lease rates continuing to rise, and product being absorbed, the core fundamentals remain strong.
Availability had a generous increase this quarter, specifically in the West where the rate increased over one point since 2Q. The square footage of existing available space doubled in comparison to last quarter, but it still only makes up a third of all available inventory, compared to the majority (61%) of availability being under construction and 5.5% being sublease space.

Although availability has ticked up, net absorption and gross activity remained fairly consistent with previous quarters. A generous amount of big-box renewals contributed to that gross activity, and the nearly 5M square feet of construction completions in 3Q contributed to such a positive net absorption. Two pre-leased 1M square foot buildings(one in the West and one in the East) heavily contributed to the large number that was completed product this quarter.

Economic uncertainty relaxed some aspects of the market, such as gross lease rates under 100,000 square feet and some NNN 100K+ deals in the East. User sale prices fell slightly, solely due to lack of deals done, as there have been seldom user sales over the past few months.

Institutional investors have transacted a great deal in the I.E. as industrial investment sales totaled approximately $1.7 billion year to date, with the average sale price doubling in the past two years from $159 to $352 PSF. A large investment sale in the West brought the average investment sale price up to $433 PSF. Rising interest rates could push institutional investors out of the market for certain deals, giving smaller investors or users an opportunity they haven’t had the past year.

Read the full report here. View our historical statistic comparison matrix here.