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Inland Empire Warehouse Tenants Facing Sticker Shock

Inland Empire warehouse users who plan to renew a five-year lease or move to another space in the coming months will face some of the nation’s highest rent increases, according to a new report.

Using a “best guesstimate,” the study from CBRE predicts users who signed a five-year lease in 2016 will pay nearly 62% more on a triple-net lease — far more than the average 3% annual rent hike and well above the expected U.S. increase of 25%.

That would boost the Inland Empire’s current average of $6.75 per square foot to $10.92 a square foot, ranking it as the region with the third highest increase in the U.S.

With a triple-net lease, the user agrees to pay not only rent but real estate taxes, building insurance and maintenance on the property.

Rising e-commerce demand

The rent increase speaks to the rising demand for warehouse space as retailers and logistics firms throughout the U.S. scramble to keep pace with an e-commerce boom that continues to explode as more people shop from home amid the COVID-19 pandemic.

Orange County ranked sixth on CBRE’s list, with an expected rental increase of 46.6%. That would hike its price from an average of $10.67 per square foot to $15.64 a square foot.

Los Angeles ranked 14th, with an expected hike of 33.3%, raising the per-square-foot average from $9.72 to $12.96.

The only U.S. regions that are expected to see bigger rental increases for warehouse space in the coming months are central New Jersey (63.5%) and Philadelphia (62.2%).

Nashville landed at the bottom of the list with a predicted 29.1% increase.

Dan de la Paz, executive vice president with CBRE’s Ontario office, said local rent costs will be steeper than ever.

Securing space ‘at almost any price’

“Demand for warehouse space in our region appears to be at an all-time high as consumers are seeking more goods,” de la Paz said in a statement. “This is apparent at our ports of Los Angeles and Long Beach, where we’re likely going to hit record cargo processing of 20 million TEUs this year.”

Given the unprecedented demand, warehouse users are increasingly realizing that their first priority is securing space at almost any price, he said.

“The unique dynamic of today’s market for all — occupiers, investors and landlords — is that pricing is based on future estimates, so people are using their best ‘guesstimate’ to support pricing of warehouse space today,” de la Paz said.

Leading in population, job growth

A UCLA Anderson Forecast released this week shows the Inland Empire is leading Southern California in population and job growth because of lower home prices and rising demand for warehouse workers.

The two-county region’s transportation, warehousing and utility sectors have seen explosive growth, with a 197% increase over the past decade due to the rapid rise of e-commerce, the forecast said.

By KEVIN SMITH | | San Gabriel Valley Tribune

PUBLISHED: December 10, 2021 at 8:00 a.m. | UPDATED: December 10, 2021 at 8:48 a.m.

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