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COMMERCIAL REAL ESTATE QUARTERLY REPORT

In the Inland Empire, an industrial real estate boom

Demand for warehouse space in Riverside and San Bernardino counties is picking up as firms set up massive distribution centers.

April 12, 2013|By Roger Vincent, Los Angeles Times
  • John Magness, left, and Scott Schwarz of Hillwood Construction Services stand in a 480,000-square-foot warehouse built for Ouaker Oats in San Bernardino.
John Magness, left, and Scott Schwarz of Hillwood Construction Services… (Katie Falkenberg, Los Angeles…)

Nestled on the windy plains at the foot of the San Bernardino Mountains, once austere stretches of agricultural land have morphed into the country's most desirable industrial real estate market, and it is growing faster than any other industrial region in the U.S.

Among the many merchants running large-scale operations now are such household names as Amazon.com Inc., Kohl's Corp., Skechers USA Inc., Mattel Inc. and Stater Bros. Markets.

They come for vast warehouses — some are bigger than 30 football fields under one roof — where they can store, process and ship merchandise such as clothes, books and toys to ever more online shoppers and handle the rising flood of goods passing through the ports of Los Angeles and Long Beach.

The clamor for these big buildings is so intense in San Bernardino and Riverside counties that developers are erecting more than 16 million square feet of warehouses on speculation, meaning they are gambling that buyers or renters will rush forward to claim the buildings by the time they are complete.

"The Inland Empire is to industrial real estate what downtown Manhattan is to office real estate," said Craig Meyer, head of industrial property brokerage in the U.S for Chicago firm Jones Lang LaSalle. "L.A. has been the hottest market in the world for 10 years running."

Although the Inland Empire was hard hit by the recession and earned a reputation for mortgage foreclosures, evictions and high unemployment rates during the downturn, the industrial property business has remained a bright spot. And it is now picking up speed.

Southern California, with its enormous population and teeming seaports, has long been a vital hub for major retailers and manufacturers, real estate brokers said. But with Los Angeles and Orange counties essentially full, the Inland Empire with its wide-open spaces is now where the big new buildings are flying up.

Los Angeles County's industrial vacancy is a mere 2.5%, the lowest in the country, said Kurt Strasmann of brokerage CBRE Group Inc., and some of the priciest industrial property in the U.S. is around Los Angeles International Airport. Orange County is the second-tightest market in the U.S., with 3.5% vacancy.

The two counties and the Inland Empire have a combined total of more than 1.65 billion square feet of industrial property, which is twice as big as the next largest market, Chicago.

"We are a big, deep market," Strasmann said.

Key to all this is logistics — the organization and movement of goods to accommodate business. And it's vital if the Inland Empire is to prosper, economist John Husing said. Blue-collar workers in logistics typically earn more than their counterparts employed in restaurants and other service jobs.

"It's a very good match for our need to put primary wage earners in a family on the horizon to the middle class," Husing said.

Setting up manufacturing and distribution operations in Southern California was mandatory for Fleischmann's Vinegar Co., which traces its history to the 1920s, Chief Executive Ken Simril said.

The Cerritos company makes condiments, sauces and dressings for consumers and food flavorings and preservatives used by other food makers.

"For freshness, it's important to be close to where people eat," Simril said. Fleischmann's also ships its products to Southeast Asia, and being close to the ports cuts transportation costs.

"It would have been cost-prohibitive to ship from the Midwest to the Pacific Rim," he said.

Limited transportation costs have always been an attraction of the Los Angeles-area industrial property business. But recent changes in technology have created growing demand for warehouses so cavernous that they would have been too cumbersome to operate efficiently in the past, real estate broker Darla Longo of CBRE Group said.

Once upon a time, a warehouse was where you stored things for weeks or months, such as toys and canned food that retailers would grab to restock their shelves. Sorting, organizing and moving the inventory was a constant challenge.

Tracking goods in the modern age of bar codes, scanners and computers is a comparative breeze. The location of every widget can be identified with pinpoint accuracy and fetched by robots that can lift and carry 3,000-pound loads with ease.

"Technology has allowed larger facilities with more sophisticated equipment to be able to deliver products very efficiently," Longo said, enabling businesses to consolidate their logistical operations into bigger warehouses. "And they don't have to hire as many people because robotics can do work for them."

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