Will Inland Empire’s soaring industrial prices force businesses out of California?

As someone famous once opined, “They’re only opinions, but they’re all mine!”

Today, I embark on the first “random thoughts” column of the year. It’s been a while and clearing your inbox is cathartic, so here goes!

Forecast for 2022

Annually, our chapter of the Society of Industrial and Office Realtors convenes for a backward and forward look at commercial real estate happenings. We recently held our first meet-up since February 2020.

Yeah, the pandemic crimped face-to-face gatherings, but I digress.

It was great to see the gang. But, what must have seemed like a good idea when planning the event — eating outdoors — morphed into a bunch of shivering brokers huddled around too few heaters. Outdoor event in February? What a good idea. It was a bit of a weather gamble. Reviewed were the office and industrial markets for Orange County and the Inland Empire. Below are the highlights …

Industrial – Orange County: Robust activity, lease and sale price increases in the 30% range, little to no available inventory. Expect to see older office buildings purchased and razed for new industrial developments – think former OC Register campus, BofA data center in Brea, etc. (Both of those campuses, by the way, were snared by Amazon, one in a sale, the other as a lease.) Expect more of this in the year ahead.

Office – OC: The office market remains mired in uncertainty as big employers are fearful of a return to the office. However, some studies have indicated productivity wanes with a remote workforce. Therefore, CEOs are attempting to balance safety and productivity. Expect to see hybrid models prevail — flexible hours and days when an office is fully staffed. Brokering during this uncertainty is a challenge.

Office – Inland Empire: Inland vacancy rates are lower than Orange County’s. OC has 13 spaces of 100 vacant whereas Inland has 10. We saw a mass exodus of population from the coastal areas to Inland areas over the last two years. Why pay the exorbitant coastal prices if you don’t need to commute to an office? When all the uncertainty settles, we predict more corporate headquarters will be located Inland. After all, employers follow the people. Especially if you’ve got a reluctant-to-commute workforce.

Industrial – Inland: The region has seen a boom in e-commerce, third-party logistics, storing and shipping massive online ordering volume. The industrial activity Inland is off the charts! Insiders believe we’re headed for $500 per square foot to buy an industrial building and rents of $2 per square foot. Just last year, those rates were $125 and $0.65, respectively. Those that can’t pay the higher prices will be forced East, chased out of state, or out of business.

Ukraine: Interestingly, there was little to no conversation of the Russian invasion. It could be the recaps were prepared prior or it could be everyone is taking a wait and see approach. Regardless, we should experience increased energy prices, especially for oil and gas. Aside from larger spikes at the pump, expect price increases in petroleum products to affect all manner of raw materials that make stuff.

My iPad’s plastic case, that foam in your pillow, and the soles of your shoes are all made from petroleum products. So, a further shortage of said raw materials could really hit us in the wallet. Not to mention, we use natural gas to generate electricity. You get the idea.

So, there you go. More space than you knew existed.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

Source: Orange County Register