Demand for industrial buildings in the Inland Empire during the third quarter of 2013 continued to soar with sales and leasing activity reaching new highs with some 90 leases and 40 sales completed in the third quarter alone and the region recording its 16th consecutive quarters of both positive net absorption and declining vacancy rates, according to Colliers International’s third quarter report on the region’s industrial real estate market.

Overall vacancy rates during the third quarter declined to 5.1 percent from the 5.6 percent recorded during the second quarter of 2013, the report noted, pushed downward by the region’s soaring demand for large warehouse and distribution buildings. Absorption rates during the latest three-month period remained slightly above those recorded in the second quarter standing at 3,567,300 square feet.

 “Industrial users are driven by increasing their efficiency and these newer, larger buildings allow them to do just that,” said Colliers Executive Managing Director John Hollingsworth, who oversees the firm’s industrial property operations in the Greater Los Angeles Region. “But even if vacancies tick upward, the demand is there to drive them right back down because  spec product is almost non-existent, but, more importantly, there is a stunning lack of buildings that are most in demand -- those that are a minimum of a half-million square feet or more in size.”

 A lack of buildings in the 500,000-square-foot and above category pushed vacancies even lower in that classification, according to the Colliers report, recording a third quarter vacancy rate of  just 4.4, the report noted, one of the lowest rates for any type or size of building t in the Inland Empire region.

 “Demand for buildings in that size range is there, but construction has been slow to catch up with that demand,” said Hollingsworth. “There is a pent-up need for these large, warehouse and distribution buildings, but the economic realities of the past few years have kept many major developers who are capable of constructing such large structures on the sidelines.” 
Total sales and leasing activity during the third quarter reached 8,373,800 square feet,

 Colliers reported, with some 1,494,000 square feet of new construction coming on the market in the third quarter. Currently, there is 14,214,100 square feet of space under construction, the report noted.

 “Although there is a lot of construction underway, we anticipate tenant demand will quickly absorb much of it,” said Hollingsworth. “Although there is some speculative building underway, including the Empire Gateway project that we are marketing in Chino, developers are still taking a cautious approach to spec building and will be cautious until the economy shows a measure of sustained strength and when financing options improve.”

 Non-premium average asking lease rates, meantime, rose minimally in the third quarter to 40 cents per square foot for triple-net users, increasing from 39 cents per square foot in the second quarter, but, the report cautioned, rates could see further increases in 2014. 

 “Those rates are only the average asking rates and do not reflect some of the asking rates we are seeing on newly completed projects,” Hollingsworth said. “Newer and more modern space that is beginning to come on the market can and does command a premium and does have  substantially higher average asking lease rates.”