As the regional economy continues to sputter, vacancy rates are beginning to climb at warehouses and distribution centers for industrial goods, putting the already hard-hit Inland Empire at further risk of decline and threatening facilities in Los Angeles and Orange counties as well.
After years of high occupancy and rapid construction of cargo hubs, immense spaces are now standing empty. Some fell victim to the collapse of retailers such as Mervyns and Wickes Furniture; others are vacant because the huge national falloff in demand for consumer goods has meant fewer imports and less need for storing and shipping them.
Nearly all of these warehouses and shipping hubs are located in San Bernardino and Riverside counties, where a long-running industrial real estate boom is finally starting to go bust.
"We were the hottest market in the country," industrial real estate broker Kevin McKenna said. "Imports were going crazy and the ports of L.A. and Long Beach were booming."
Then, of course, the world economy changed.
Industrial vacancy in the Inland Empire doubled in the last year, from 6.2% in the fourth quarter of 2007 to 12.4% at the end of 2008, according to figures just released by brokerage Cushman & Wakefield. Hardest hit was the eastern side of the region including the cities of San Bernardino and Redlands, where vacancy has surpassed 22%.
More centrally located industrial properties in Los Angeles and Orange counties are also beginning to feel the pinch, although the modest increases in vacancy rates are still considered healthy by industry standards. Many of those properties are rented to small entrepreneurs who are hunkered down but so far toughing out the economic downturn, industry observers say. Small businesses that do fail are easier for landlords to replace than the large corporate tenants that favor the Inland Empire.
Vacancy in Los Angeles County is 3.3%, up only 1 percentage point from a year ago. Orange County's vacancy is 5.1%, up from 3.2% last year at this time.
Industrial real estate is a lagging indicator of the economy, however, and the full effect of the recession may not be felt for months. Many industrial- property owners in the healthy markets are concerned about the radical change in fortune on the east side of the Inland Empire.
"The big question everybody is trying to figure out the answer to is whether that contagion is going to ripple all the way in" to the rest of Southern California, said John McMillan, a broker at Cushman & Wakefield.
