Inland Empire Office Report – Summer 2019

The aging population’s demand for quality health care has been the main driver of development activity in the metro.
Office-using employment in Inland Empire, click to enlarge
Office-using employment in Inland Empire, click to enlarge

Although a fraction the size of the industrial sector, which remains the Inland Empire’s economic cornerstone, the office sector boasts strong fundamental performance. Vacancy decreased to 10.3 percent at the end of June, and a lack of competitive developments on the horizon is likely to push it even lower. The expansion of the industrial segment continues to dominate the Inland Empire’s economy: Investment is booming, with transaction volume exceeding $1 billion in the first half of 2019.

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Office transaction volume slowed in the first half of 2019 to $71 million, compared to $454 million the previous year. Class B properties comprised the majority of sales, indicating the potential value-add plays bear in the market. Asking prices for office leases averaged $23.19 per square foot in June. While far below the national average, rents are expected to rise given the supply constraints of the market.

Employment growth by sector in Inland Empire, click to enlarge
Employment growth by sector in Inland Empire, click to enlarge

The aging population’s demand for quality health care has been the main driver of development activity: The two major construction projects are medical office buildings. Similarly, all of the nearly 140,000 square feet delivered in 2018 consisted of medical office space. While office employment is growing—the professional and business services field saw a net gain of 4,300 jobs year-over-year through May— developers have been hesitant to add speculative office projects to the pipeline.

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