Inland Empire, CA
The Inland Empire encompasses 4,850 square miles and is located inland of and adjacent to Los Angeles. The market is home to approximately 4.6 million people, serving as a lower-cost option for those looking to reside outside the Los Angeles metro. Today, the Inland Empire has a 14 percent higher homeownership rate than the state as a whole and is one of the fastest-growing regions in California. Between 2000 and 2010, the Inland Empire’s population expanded by 30% percent, driven by jobs in the office and industrial sectors. The market is highly sought after for industrial tenants as numerous freeways run through the market, including I-40, a major cross-country freeway spanning eight states. The Inland Empire also offers many lower-risk investment options, especially for retail.
The Retail Market
It’s no surprise that Southern California’s retail market was impacted in 2020 due to COVID-19 – vacancy rates increased, and rent growth turned negative. However, the tables turned in Q2 2021, and retail absorption in Southern California is spiking once again – largely thanks to the Inland Empire. The market recorded 1.8 million square feet in positive net absorption, a sudden improvement after five straight quarters of negative net absorption. As a result, the vacancy rate fell to 7.4 percent. The Inland Empire is typically known for small trades, but since April 2021, larger trades have been occurring in the market, including auto dealerships and shopping centers. The market cap rate still holds a wide gap relative to those in Southern California’s coastal markets, where properties often trade over a seven percent cap rate.
The Industrial Market
The Inland Empire boasts a large footprint of nationally recognized industrial tenants, with various products to drive capital to the area. The range of capital includes institutional, public REIT, and private equity investors. Unlike Los Angeles and Orange County, where industrial properties can trade for their value-add potential or sometimes even complete redevelopment purposes, most large industrial buildings trade for immediate cash flow. The Inland Empire industrial assets are priced above the national average, and on an income-capitalization basis, they are some of the most expensive properties in the nation. Foreign-origin buyers often pay top-dollar for industrial assets, one reason why price appreciation by square foot has averaged ten percent annually since 2014, according to CoStar. Yet most sales are 1 & 2 Star properties.
The Multifamily Market
A handful of outsized sales closed at the end of 2020, positively impacting sales activity in 2021. Cap rates remain low and continue to experience downward pressure, and price appreciation outpaces the national average. Investment activity is driven by value-add deals, contributing to the average price changes in the market. The apartment market in the Inland Empire is continuing to grow in demand, experiencing the biggest rent hike in the nation, as renters seek more affordable places to live. The average apartment rent in the Inland Empire was $1,662 a month in Q1 2021, an 8.5 percent increase from the year prior.
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