Inland Empire’s Biggest Industrial Dilemma

Wednesday, January 28th 2015

ONTARIO, CA—Finding product to buy and getting a high yield from it is the biggest problem investors have in this market, Steve Batcheller, partner with Panattoni Development Co. Inc., tells In this preview to RealShare Inland Empire this Thursday here, we spoke exclusively with Batcheller about what factors support the current industrial market in the Inland Empire, how the sector is evolving and what investors should be aware of when considering this market. What factors support the current industrial market in the Inland Empire?

Batcheller: The Inland Empire is part of Southern California, and Southern California is the second-largest population center in the country except for the New York metropolitan area. With the exception of the Inland Empire, there’s no room for growth anywhere else here. All the growth in Southern California ends up in the Inland Empire. It is close to the largest ports by far in the US, which let in almost half of all the merchandise that comes into the US. There’s a simple reason for that: the shortest distance between China and the US is through L.A. or Long Beach. Billions of dollars in infrastructure have been invested to be able to handle that. Also, the big trend in logistics is building much larger, more functional buildings of 1 million to 1.5 million square feet or more, with 36-ft. or 40-ft. clear heights. There’s no other place to build those size buildings in Southern California. What are the highlights of industrial development in the area?

Batcheller: We finished a 1.5-million-square-foot build-to-suit for Procter & Gamble last year, and it was the fifth-largest building ever built in the state of California. We were awarded in 2014 the 2013 developer of the year award and the lease of the year award for it from NAIOP. E-commerce is the other major driver to this market, and clearly the leader in e-commerce is Amazon. They had not been in California because of a sales-tax issue, but that has changed, and as a result there are six Amazon distribution centers here that didn’t exist three years ago.Walmart is also under construction for a 1-million square-foot build-to-suit. How do you see this sector evolving as the economy continues to recover and e-commerce continues to thrive?

Batcheller: The last couple of years, because of all the factors I mentioned, the Inland Empire has been constructing a huge amount of space, and vacancy is down because of the demand. In the short run, I see it continuing exactly the way it has been, primarily with new construction and larger buildings. The West Inland Empire is largely full at this point with little land fordevelopment, so the demand will have to go farther out up to 60 miles east of Ontario. Until the economy slows down, the same amount of construction we’ve had will continue. What should industrial investors be aware of when considering this market?

Batcheller: Basically, the biggest problem investors have in this market is finding things to buy. Any really nice asset that comes on the market probably has 10 or 20 different offers. Then, yields end up being really low because demand is so strong. Southern California is a very large market, and few sites are available, plus getting them entitled is difficult. It’s very difficult to bring this stuff on. But the Inland Empire is arguably the most desirable industrial market in the US and possibly in the world. The hard part is finding a property you can afford.