CoStar Office Report Empire Industrial Market ©2016 CoStar Group, Inc. The CoStar Industrial Report...

Inland Empire Industrial MarketF i r s t Q u a r t e r 2 0 1 6

The CoStarIndustrial Report

Inland Empire Industrial Market

©2016 CoStar Group, Inc. The CoStar Industrial Report A

First Quarter 2016 – Inland Empire

Table of ContentsTable of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMethodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BTerms & Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CMarket Highlights & Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1CoStar Markets & Submarkets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Inventory & Development Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Inventory & Development AnalysisSelect Top DeliveriesSelect Top Under Construction Properties

Figures at a Glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Figures at a Glance by Building Type & MarketFigures at a Glance by Building Type & SubmarketHistorical Figures at a Glance

Leasing Activity Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Select Top Lease Transactions

Sales Activity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Sales Activity AnalysisSelect Top Sales Transactions

Analysis of Individual CoStar Submarket Clusters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Inland Empire East MarketInland Empire West Market


B The CoStar Industrial Report ©2016 CoStar Group, Inc.

Inland Empire – First Quarter 2016


©2016 CoStar Group, Inc. The CoStar Industrial Report C


MethodologyThe CoStar Industrial Report calculates Industrial statistics using CoStar Group's base of existing, under construction and under renovation Industrial buildings in each given metropolitan area. All Industrial building types are included, including warehouse, flex / research & development, distribution, manufacturing, industrial showroom, and service buildings, in both single-tenant and multi-tenant buildings, including owner-occupied buildings. CoStar Group's national database includes approximately 80.7 billion square feet of coverage in 3.5 million properties. All rental rates reported in the CoStar Industrial Report are calculated using the quoted rental rate for each property. The quoted rental rate is exclusive of the expense pass through associated with the rent.

© Copyright 2016 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of the information contained herein, CoStar makes no guarantee, representation or warranty regarding the quality, accuracy, timeliness or completeness of the information. The publication is provided ‘as is’ and CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

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For information on subscribing to CoStar’s other products and services, please contact us at 1-877-7COSTAR, or visit our web site at www.costar.com


B The CoStar Industrial Report ©2016 CoStar Group, Inc.



©2016 CoStar Group, Inc. The CoStar Industrial Report C


Terms & DefinitionsAvailability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.

Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date.

Build-to-Suit: A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant. A build-to-suit can be leased or owned by the tenant. In a leased build-to-suit, a tenant will usually have a long term lease on the space.

Buyer: The individual, group, company, or entity that has purchased a commercial real estate asset.

Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year’s net operating income and the current market value of a particular property. The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price).

CBD: Abbreviation for Central Business District. (See also: Central Business District)

Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA.

Class A: A classification used to describe buildings that generally qualify as extremely desirable investment-grade properties and com-mand the highest rents or sale prices compared to other buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-of-a-kind floor plans. They can be an architectural or historical landmark designed by prominent architects. These buildings contain a modern mechanical system, and have above-average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings. They are generally the most attractive and eagerly sought by investors willing to pay a premium for quality.

Class B: A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such buildings offer utilitarian space without special attractions, and have ordinary design, if new or fairly new; good to excellent design if an older non-landmark building. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Class C: A classification used to describe buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These build-ings lack prestige and must depend chiefly on a lower price to attract tenants and investors.

Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries)

Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space.

Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certifi-

cate of occupancy must have been issued for the property.

Delivery Date: The date a building completes construction and receives a certificate of occupancy.

Developer: The company, entity or individual that transforms raw land to improved property by use of labor, capital and entrepreneurial efforts.

Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased.

Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation.

Flex Building: A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off.

Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insur-ance.

Gross Absorption: The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space.

Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings.

Industrial Building: A type of building adapted for such uses as the assemblage, processing, and/or manufacturing of products from raw materials or fabricated parts. Additional uses include warehous-ing, distribution, and maintenance facilities. The primary purpose of the space is for storing, producing, assembling, or distributing product.

Landlord Rep: (Landlord Representative) In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep.

Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease.

Leasing Activity: The volume of square footage that is commit-ted to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings.

Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building-type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can be further subdivided into Submarkets. (See also: Submarkets)

Multi-Tenant: Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different


D The CoStar Industrial Report ©2016 CoStar Group, Inc.

Inland Empire – First Quarter 2016 First Quarter 2016 – Inland Empire


©2016 CoStar Group, Inc. The CoStar Industrial Report 1

tenant needs. (See also: Tenancy).

Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted Net Absorption includes direct and sublease space.

Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs.

New Space: Sometimes called first generation space, refers to space that has never been occupied and/or leased by a tenant.

Occupied Space: Space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant.

Office Building: A type of commercial building used exclusively or primarily for office use (business), as opposed to manufacturing, warehousing, or other uses. Office buildings may sometimes have other associated uses within part of the building, i.e., retail sales, finan-cial, or restaurant, usually on the ground floor.

Owner: The company, entity, or individual that holds title on a given building or property.

Planned/Proposed: The status of a building that has been announced for future development but not yet started construction.

Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date.

Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA).

Property Manager: The company and/or person responsible for the day-to-day operations of a building, such as cleaning, trash removal, etc. The property manager also makes sure that the various systems within the building, such as the elevators, HVAC, and electrical systems, are functioning properly.

Quoted Rental Rate: The asking rate per square foot for a par-ticular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease.

RBA: Abbreviation for Rentable Building Area. (See also: Rentable Building Area)

Region: Core areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets)

Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant.

Rentable Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.

Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis.

Sales Price: The total dollar amount paid for a particular property at a particular point in time.

Sales Volume: The sum of sales prices for a given group of buildings in a given time period.

Seller: The individual, group, company, or entity that sells a particular commercial real estate asset.

SF: Abbreviation for Square Feet.

Single-Tenant: Buildings that are occupied, or intended to be occupied by a single tenant. (See also: Build-to-suit and Tenancy)

Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space.

Submarkets: Specific geographic boundaries that serve to delin-eate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (See also: Market).

Suburban: The Suburban and Central Business District (CBD) des-ignations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inven-tory not located in the CBD. (See also: CBD)

Tenancy: A term used to indicate whether or not a building is occu-pied by multiple tenants (See also: Multi-tenant) or a single tenant. (See also: Single-tenant)

Tenant Rep: Tenant Rep stands for Tenant Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep.

Time On Market: A measure of how long a currently available space has been marketed for lease, regardless of whether it is vacant or occupied.

Under Construction: Buildings in a state of construction, up until they receive their certificate of occupancy. In order for CoStar to consider a building under construction, the site must have a concrete foundation in place. Abbreviated UC.

Vacancy Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations.

Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space.

Weighted Average Rental Rate: Rental rates that are cal-culated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces.

Year Built: The year in which a building completed construction and was issued a certificate of occupancy.

YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied.


D The CoStar Industrial Report ©2016 CoStar Group, Inc.

Inland Empire – First Quarter 2016 First Quarter 2016 – Inland Empire



Overview

Inland Empire’s Vacancy Increases to 5.0% Net Absorption Positive 2,230,823 SF in the Quarter

The Inland Empire Industrial market ended the first quar-ter 2016 with a vacancy rate of 5.0%. The vacancy rate was up over the previous quarter, with net absorption

totaling positive 2,230,823 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 667,855 square feet. Rental rates ended the first quarter at $5.89, an increase over the previous quarter. A total of 16 buildings delivered to the market in the quarter totaling 2,748,434 square feet, with 16,582,562 square feet still under construction at the end of the quarter.

AbsorptionNet absorption for the overall Inland Empire Industrial

market was positive 2,230,823 square feet in the first quarter 2016. That compares to positive 7,110,519 square feet in the fourth quarter 2015, positive 7,582,460 square feet in the third quarter 2015, and positive 5,216,157 square feet in the second quarter 2015.

Tenants moving out of large blocks of space in 2016 include: Distribution Alternatives moving out of (591,020) square feet at 9774 Calabash Ave, General Mills Sales moving out of (458,262) square feet at CentrePointe South Bldg 5, and Georga Pacific Corp moving out of (450,000) square feet at Majestic Spectrum South Bldg 5.

Tenants moving into large blocks of space in 2016 include: General Mills moving into 1,133,382 square feet at Perris Valley Logistics Center, Distribution Alternatives moving into 927,566 square feet at DCT Rialto Logistics Center, and Amazon mov-ing into 882,230 square feet at ProLogis Park Bldg 1.

The Flex building market recorded net absorption of nega-tive (81,476) square feet in the first quarter 2016, compared to positive 142,564 square feet in the fourth quarter 2015, positive 100,700 in the third quarter 2015, and positive 23,559 in the second quarter 2015.

The Warehouse building market recorded net absorption of positive 2,312,299 square feet in the first quarter 2016 com-pared to positive 6,967,955 square feet in the fourth quarter 2015, positive 7,481,760 in the third quarter 2015, and positive 5,192,598 in the second quarter 2015.

VacancyThe Industrial vacancy rate in the Inland Empire market

area increased to 5.0% at the end of the first quarter 2016. The vacancy rate was 4.9% at the end of the fourth quarter 2015, 5.2% at the end of the third quarter 2015, and 5.0% at the end of the second quarter 2015.

Flex projects reported a vacancy rate of 7.4% at the end of the first quarter 2016, 6.8% at the end of the fourth quarter 2015, 7.8% at the end of the third quarter 2015, and 8.4% at the end of the second quarter 2015.

Warehouse projects reported a vacancy rate of 5.0% at the end of the first quarter 2016, 4.9% at the end of fourth quarter 2015, 5.1% at the end of the third quarter 2015, and 4.9% at the end of the second quarter 2015.

Largest Lease SigningsThe largest lease signings occurring in 2016 included: the

885,000-square-foot lease signed by Port Logistics at Majestic Spectrum in the Inland Empire West San Bernardino mar-

Vacancy Rates by Building Type 2000-2016

Source: CoStar Property®

Absorption & Deliveries U.S. Vacancy ComparisonPast 7 Quarters Past 7 Quarters

Source: CoStar Property® Source: CoStar Property®

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Inland Empire (California) United States

2 The CoStar Industrial Report ©2016 CoStar Group, Inc.

Inland Empire � First Quarter 2016

Inland Empire Industrial MarketFirst Quarter 2016 – Inland Empire



Overview

ket; the 475,026-square-foot deal signed by Delta Children’s Products at Foothill Commerce Center in the Inland Empire San Bernardino market; and the 458,262-square-foot deal signed by 3PL at CentrePointe South - Bldg 5 in the Inland Empire West market.

Sublease VacancyThe amount of vacant sublease space in the Inland

Empire market increased to 667,855 square feet by the end of the first quarter 2016, from 427,338 square feet at the end of the fourth quarter 2015. There were 351,394 square feet vacant at the end of the third quarter 2015 and 888,382 square feet at the end of the second quarter 2015.

Inland Empire’s Flex projects reported vacant sublease space of 11,605 square feet at the end of first quarter 2016, down from the 11,928 square feet reported at the end of the fourth quarter 2015. There were 15,900 square feet of sublease space vacant at the end of the third quarter 2015, and 16,863 square feet at the end of the second quarter 2015.

Warehouse projects reported increased vacant sublease space from the fourth quarter 2015 to the first quarter 2016. Sublease vacancy went from 415,410 square feet to 656,250 square feet during that time. There were 335,494 square feet at the end of the third quarter 2015, and 871,519 square feet at the end of the second quarter 2015.

Rental RatesThe average quoted asking rental rate for available

Industrial space was $5.89 per square foot per year at the end of the first quarter 2016 in the Inland Empire market area. This represented a 1.7% increase in quoted rental rates from the end of the fourth quarter 2015, when rents were reported at $5.79 per square foot.

The average quoted rate within the Flex sector was $11.47 per square foot at the end of the first quarter 2016, while Warehouse rates stood at $5.64. At the end of the fourth quar-

ter 2015, Flex rates were $11.31 per square foot, and Warehouse rates were $5.54.

Deliveries and ConstructionDuring the first quarter 2016, 16 buildings totaling

2,748,434 square feet were completed in the Inland Empire market area. This compares to 15 buildings totaling 6,030,518 square feet that were completed in the fourth quarter 2015, 19 buildings totaling 9,261,984 square feet completed in the third quarter 2015, and 4,530,965 square feet in 16 buildings com-pleted in the second quarter 2015.

There were 16,582,562 square feet of Industrial space under construction at the end of the first quarter 2016.

Some of the notable 2016 deliveries include: Perris Valley Logistics Center, a 1,133,382-square-foot facility that delivered in first quarter 2016 and is now 100% occupied, and Prologis Redlands Distribution, a 593,563-square-foot building that delivered in first quarter 2016 and is now 57% occupied.

The largest projects underway at the end of first quarter 2016 were Renaissance Rialto-Medline, a 1,170,880-square-foot building with 100% of its space pre-leased, and March Business Center – Bldg. 1, a 1,103,003-square-foot facility that is 0% pre-leased.

InventoryTotal Industrial inventory in the Inland Empire market area

amounted to 559,245,550 square feet in 12,800 buildings as of the end of the first quarter 2016. The Flex sector consisted of 15,276,635 square feet in 898 projects. The Warehouse sector consisted of 543,968,915 square feet in 11,902 buildings.

Sales ActivityTallying industrial building sales of 15,000 square feet or

larger, Inland Empire (California) industrial sales figures fell dur-ing the fourth quarter 2015 in terms of dollar volume compared to the third quarter of 2015.

In the fourth quarter, 45 industrial transactions closed with a total volume of $484,134,600. The 45 buildings totaled 5,059,479 square feet and the average price per square foot equated to $95.69 per square foot. That compares to 53 trans-actions totaling $549,718,366 in the third quarter. The total square footage was 6,514,704 for an average price per square foot of $84.38.

Total year-to-date industrial building sales activity in 2015 is up compared to the previous year. In the twelve months of 2015, the market saw 187 industrial sales transactions with a total volume of $1,702,747,116. The price per square foot has averaged $89.68 this year. In the twelve months of 2014, the market posted 193 transactions with a total volume of $1,398,822,219. The price per square foot averaged $74.11.

Cap rates have been lower in 2015, averaging 5.72%, compared to the twelve months of last year when they aver-aged 6.39%.





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Overview

One of the largest transactions that has occurred within the last four quarters in the Inland Empire (California) market is the sale of 1001 Columbia Ave in Riverside. This 507,000-square-foot industrial building sold for $105,000,000, or $207.10 per square foot. The property sold on 2/24/2016, at a 5.90% cap rate.

Reports compiled by: Paula Bonner, Emily Chiu, Joyce Sisson, CoStar Research Managers; Patrick Ashton and Pamela Murray, CoStar Research Associates.





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CoStar Submarket Clusters & SubmarketsIn analyzing metropolitan areas, CoStar has developed geographic designations to help group properties together, called Markets, Submarket Clusters and Submarkets. Markets are the equivalent of metropolitan areas, or areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Markets are then divided into Submarket Clusters, which are core areas within a metropolitan area that are known to be competitive with each other in terms of attracting and keeping tenants. Markets are then further subdivided into smaller units called Submarkets, which serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted competitive set, or peer group.

Markets

Submarket Clusters Submarkets

Inland Empire East Coachella ValleyCoronaEast San BernardinoRiversideSouth Riverside

Inland Empire West Airport AreaNorth San BernardinoWest San Bernardino






Historical Deliveries 1982 - 2016

Source: CoStar Property® * Future deliveries based on current under construction buildings.

Construction Activity Markets Ranked by Under Construction RBA

# Bldgs Preleased SF Preleased % All Existing U/C

Inland Empire East 41 2,326,174 21.1% 40,810 268,673

Inland Empire West 24 1,586,456 34.5% 47,368 191,657

Totals 65 3,912,630 25.1% 43,763 240,236


Recent Deliveries Future Deliveries Leased & Un-Leased SF in Deliveries Since 2012 Preleased & Un-Leased SF in Properties Scheduled to Deliver


11,015,591

15,615,362

4,599,771

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Under Construction Inventory Average Bldg Size

Total RBA

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Inventory & development






Historical Construction Starts & DeliveriesSquare Footage Per Quarter Starting and Completing Construction


Recent Deliveries by Project Size Breakdown of Year-to-Date Development Based on RBA of Project

Building Size # Bldgs RBA SF Leased % Leased Avg Rate Single-Tenant Multi-Tenant

< 50,000 SF 9 329,865 203,509 61.7% $7.80 285,385 44,480

50,000 SF - 99,999 SF 2 104,316 0 0.0% $0.00 104,316 0

100,000 SF - 249,999 SF 2 328,451 72,999 22.2% $0.00 193,268 135,183

250,000 SF - 499,999 SF 1 258,857 258,857 100.0% $0.00 258,857 0

>= 500,000 SF 3 2,694,145 2,444,849 90.7% $0.00 0 2,694,145


Recent Development by Tenancy Existing Inventory ComparisonBased on RBA Developed for Single & Multi-Tenant Use Based on Total RBA

2016 Deliveries


Currently Under Construction By Building Type By Tenancy Type

6.0

0.8

9.4

4.2 4.0

2.2

11.8

2.0

4.3

7.0

5.8 5.9

1.4

2.62.1

4.3

1.82.4

6.9

8.0

4.1

1.8

4.5

9.3

6.0

3.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2013 1q 2014 1q 2015 1q 2016 1q

Millions

of

SF

Construction Starts Deliveries

21%

79%

Multi Single

77%

23%

Multi Single

3%

97%

Flex Warehouse

35%

65%

Multi Single







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Flex Market Statistics First Quarter 2016

YTD Net YTD Under Quoted

Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates

Inland Empire East 554 9,414,069 689,943 694,893 7.4% (71,125) 0 0 $11.20

Inland Empire West 344 5,862,566 423,127 429,782 7.3% (10,351) 0 0 $11.80

Totals 898 15,276,635 1,113,070 1,124,675 7.4% (81,476) 0 0 $11.47


Warehouse Market Statistics First Quarter 2016



Inland Empire East 6,483 277,767,854 16,552,646 17,010,514 6.1% 4,461,588 2,478,571 11,015,591 $5.67

Inland Empire West 5,420 267,168,261 10,689,330 10,887,712 4.1% (2,149,289) 1,237,063 4,599,771 $5.59

Totals 11,903 544,936,115 27,241,976 27,898,226 5.1% 2,312,299 3,715,634 15,615,362 $5.64


Total Industrial Market Statistics First Quarter 2016



Inland Empire East 7,037 287,181,923 17,242,589 17,705,407 6.2% 4,390,463 2,478,571 11,015,591 $5.91

Inland Empire West 5,764 273,030,827 11,112,457 11,317,494 4.1% (2,159,640) 1,237,063 4,599,771 $5.86

Totals 12,801 560,212,750 28,355,046 29,022,901 5.2% 2,230,823 3,715,634 15,615,362 $5.89


Existing Inventory Vacancy



Figures at a Glance






Figures at a Glance

Flex Submarket Statistics First Quarter 2016



Airport Area 194 3,740,473 335,068 338,589 9.1% (4,651) 0 0 $12.27

Coachella Valley 114 1,936,777 140,977 140,977 7.3% (6,866) 0 0 $10.26

Corona 66 1,112,081 75,637 80,587 7.2% (34,436) 0 0 $13.56

East San Bernardino 106 1,767,703 182,479 182,479 10.3% 9,632 0 0 $11.91

North San Bernardino 40 472,894 25,718 25,718 5.4% 215 0 0 $10.67

Riverside 151 2,566,888 197,728 197,728 7.7% 18,683 0 0 $10.71

South Riverside 117 2,030,620 93,122 93,122 4.6% (58,138) 0 0 $10.92

West San Bernardino 110 1,649,199 62,341 65,475 4.0% (5,915) 0 0 $10.25

Totals 898 15,276,635 1,113,070 1,124,675 7.4% (81,476) 0 0 $11.47


Warehouse Submarket Statistics First Quarter 2016



Airport Area 2,967 196,116,123 7,938,020 8,136,402 4.1% (962,608) 1,237,063 4,582,845 $5.40

Coachella Valley 836 11,520,759 985,831 1,001,223 8.7% 53,002 0 0 $8.06

Corona 925 28,619,046 1,847,577 1,847,577 6.5% (350,811) 193,268 154,241 $6.73

East San Bernardino 1,505 95,103,255 9,863,781 9,889,944 10.4% 2,579,382 852,420 5,411,071 $4.35

North San Bernardino 876 17,810,300 1,009,124 1,009,124 5.7% (12,551) 0 16,926 $4.95

Riverside 1,839 103,976,924 3,125,607 3,541,920 3.4% 285,183 242,297 3,575,668 $5.52

South Riverside 1,378 38,547,870 729,850 729,850 1.9% 1,894,832 1,190,586 1,874,611 $6.99

West San Bernardino 1,577 53,241,838 1,742,186 1,742,186 3.3% (1,174,130) 0 0 $7.46

Totals 11,903 544,936,115 27,241,976 27,898,226 5.1% 2,312,299 3,715,634 15,615,362 $5.64


Total Industrial Submarket Statistics First Quarter 2016



Airport Area 3,161 199,856,596 8,273,088 8,474,991 4.2% (967,259) 1,237,063 4,582,845 $5.69

Coachella Valley 950 13,457,536 1,126,808 1,142,200 8.5% 46,136 0 0 $8.33

Corona 991 29,731,127 1,923,214 1,928,164 6.5% (385,247) 193,268 154,241 $6.92

East San Bernardino 1,611 96,870,958 10,046,260 10,072,423 10.4% 2,589,014 852,420 5,411,071 $4.59

North San Bernardino 916 18,283,194 1,034,842 1,034,842 5.7% (12,336) 0 16,926 $5.21

Riverside 1,990 106,543,812 3,323,335 3,739,648 3.5% 303,866 242,297 3,575,668 $5.70

South Riverside 1,495 40,578,490 822,972 822,972 2.0% 1,836,694 1,190,586 1,874,611 $7.22

West San Bernardino 1,687 54,891,037 1,804,527 1,807,661 3.3% (1,180,045) 0 0 $7.62

Totals 12,801 560,212,750 28,355,046 29,022,901 5.2% 2,230,823 3,715,634 15,615,362 $5.89










Figures at a Glance

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Historical Rental RatesBased on Quoted Rental Rates


Vacancy by Available Space Type Vacancy by Building TypePercent of All Vacant Space in Direct vs. Sublet Percent of All Vacant Space by Building Type


U.S. Rental Rate Comparison Future Space AvailableBased on Average Quoted Rental Rates Space Scheduled to be Available for Occupancy*

Source: CoStar Property® Source: CoStar Property® * Includes Under Construction Space

Inland Empire (California) United States Inland Empire (California) United States

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

2000 4q 2002 4q 2004 4q 2006 4q 2008 4q 2010 4q 2012 4q 2014 4q

Dol

lars

/SF/Y

ear


$5.00

$5.10

$5.20

$5.30

$5.40

$5.50

$5.60

$5.70

$5.80

$5.90

$6.00

2014 3q 2015 1q 2015 3q 2016 1q

Dol

lars

/SF/Y

ear


98%

2%

Direct Sublet

97%

3%

Direct Sublet

4%

96%

Flex Warehouse

11.3

0.0

4.3

0.0 0.0 0.00.0

2.0

4.0

6.0

8.0

10.0

12.0

2016 2q 2016 4q 2017 2q

Millions

14%

86%

Flex Warehouse

Leasing Activity






Leasing Activity


* Renewal

Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company

1 Alliance California Gateway South - Bldg 3 East San Bernardino 1,102,639 1st N/A N/A Colliers International

2 Majestic Spectrum South - Bldg 4 & 5 West San Bernardino 885,000 1st Port Logistics N/A Majestic Realty Co.

3 Allesandro Business Center Riverside 582,772 1st N/A N/A C&W; Commercial Realty Advisors

4 Foothill Commerce Center Airport Area 475,026 1st Delta Children’s Products Cushman & Wake�eld Lee & Associates

5 CentrePointe South - Bldg 5 West San Bernardino 458,262 1st 3PL Cushman & Wake�eld Cushman & Wake�eld

6 Baseline Logistics Center I East San Bernardino 373,771 1st Under Armour JLL Lee & Associates; Colliers Int.

7 Hemlock Logisitics Center Airport Area 351,386 1st ACT Ful�llment Lee & Associates Colliers International

8 Prologis Redlands Distribution East San Bernardino 341,280 1st Munchkin JLL Prologis; CBRE

9 Carson Alliance Bldg 2 East San Bernardino 302,290 1st N/A Cresa Orange County JLL

10 Ontario Pacific Distribution Center - Phase I* Airport Area 274,414 1st Hubbell Lighting, Inc. CBRE Direct Deal

11 RC Distribution Center III Airport Area 234,721 1st Zodiac Seats Cresa Partners Voit Real Estate Services

12 1508 W Casmalia St East San Bernardino 218,980 1st Guitar Center N/A Lee & Associates

13 Distribution Centre 13B North San Bernardino 211,000 1st Arden Company Voit Real Estate Services Southern California Logistics

14 17825 Indian St Riverside 160,795 1st N/A N/A CBRE

15 Watson Industrial Park - Bldg 831 Airport Area 160,000 1st Smart & Final N/A LAREM

16 13397 Marlay Ave* Airport Area 157,008 1st Kent H. Landsberg Company Cushman & Wake�eld Colliers International; CBRE

17 Fontana Commerce Center - Bldg 1 Airport Area 155,632 1st Yankee Clipper Distribution Cushman & Wake�eld Colliers International

18 13880 Monte Vista Ave West San Bernardino 143,955 1st Roadtex Lee & Associates Lee & Associates

19 3951 E Earlstone St Airport Area 140,400 1st N/A CBRE Cushman & Wake�eld

20 12320 4th St Airport Area 134,656 1st On the Spot Trucking, Inc. CBRE CBRE

21 4162 Georgia Blvd East San Bernardino 130,000 1st C & M Fine Pack, Inc. N/A N/A

22 Tolco Incorporated Corona 126,730 1st N/A N/A CBRE

23 24950 Grove View Rd Riverside 125,600 1st Fisher & Paykel Healthcare N/A Colliers International

24 Cantu-Galleano Distribution Riverside 122,585 1st N/A N/A Colliers International

25 13850 Central Ave West San Bernardino 110,526 1st N/A Lawrence Allen & Associates JLL

26 3790 De Forest Cir Riverside 108,000 1st The Honest Company N/A Lee & Associates

27 5501 Santa Ana St* Airport Area 103,000 1st Menlo Logistics Lee & Associates Lee & Associates

28 1980 E Elm St* Airport Area 98,536 1st Alpha Surplus N/A Colliers International

29 5430 E Francis St Airport Area 77,000 1st N/A N/A Colliers International

30 12851 Reservoir St West San Bernardino 76,351 1st Kenco Logistic Services N/A Colliers International

31 1704-1734 S Vineyard Ave Airport Area 72,500 1st ReyRich Plastics, Inc. Sudweeks Commercial, Inc. Lee & Associates

32 4698 Brookhollow Cir* Riverside 62,400 1st Advanced Riggers and Millwrights Direct Deal Direct Deal

33 Paci�c Park - Bldg C Riverside 57,535 1st N/A Lee & Associates Lee & Associates

34 231 N Sherman Ave Corona 54,492 1st N/A BRC Advisors Lee & Associates

35 Interstate Business Park - Bldg B Riverside 51,570 1st Opc Trucking, Inc. Lee & Associates Lee & Associates

36 Paci�c Park - Bldg B Riverside 45,580 1st N/A N/A Lee & Associates

37 555 S Promenade Ave Corona 44,000 1st N/A N/A Investment Building Group

38 11150 Inland Ave* Riverside 42,786 1st Cargo West LLC N/A JLL

39 Waterman Business Park - Bldg 4 East San Bernardino 41,464 1st N/A N/A Lee & Associates

40 Allen Street Buiness Park - Bldg 4 East San Bernardino 41,044 1st Sandton RG Realty CBRE

Select Top Industrial Leases Based on Leased Square Footage For Deals Signed in 2016






Sales Activity

The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter

Source: CoStar COMPS®

Sales Volume & Price Sales Analysis by Building SizeBased on Industrial Building Sales of 15,000 SF and Larger Based on Industrial Bldg Sales From Jan. 2015 - Dec. 2015

Bldg Size # RBA $ Volume Price/SF Cap Rate

< 25,000 SF

231 2,573,481 $288,630,152 112.16$ 6.59%

25K-99K SF

78 3,721,539 $383,084,224 102.94$ 6.02%

100K-249K SF

35 5,084,664 $456,905,750 89.86$ 5.72%

>250K SF 22 9,183,068 $765,918,770 83.41$ 4.82%

Source: CoStar COMPS® Source: CoStar COMPS®

U.S. Price/SF Comparison U.S. Cap Rate ComparisonBased on Industrial Building Sales of 15,000 SF and Larger Based on Industrial Building Sales of 15,000 SF and Larger

Source: CoStar COMPS® Source: CoStar COMPS®

$40

$50

$60

$70

$80

$90

$100

$110

2012 1q 2013 1q 2014 1q 2015 1q

Inland Empire (California) US

$0

$100

$200

$300

$400

$500

$600

2012 1q 2013 1q 2014 1q 2015 1q

Millions

of

Sale

s V

olu

me D

ollars

$0

$20

$40

$60

$80

$100

$120

Price

/SF

Sales Volume Price/SF

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2013 1q 2014 1q 2015 1q

Cap R

ate

Perc

enta

ge

$90

$140

$190

$240

$290

$340

$390

Dolla

rs/SF

Cap Rate Price/SF

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2012 1q 2013 1q 2014 1q 2015 1q

Cap R

ate

Perc

enta

ge

Inland Empire (California) US






Sales Activity

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Inland Empire Industrial MarketMARKET HIGHLIGHTS - Flex & Warehouse




I n l a n d E m p i r e E a s t M a r k e t

Deliveries, Absorption & Vacancy Historical Analysis, Flex and Warehouse


Vacant Space Quoted Rental RatesHistorical Analysis, Flex and Warehouse Historical Analysis, Flex and Warehouse


Net QuotedPeriod # Bldgs Total RBA Vacant SF Vacancy % Absorption # Bldgs Total RBA # Bldgs Total RBA Rates

2016 1q 7,037 287,181,923 17,705,407 6.2% 4,390,463 12 2,478,571 41 11,015,591 $5.91

2015 4q 7,025 284,703,352 19,617,299 6.9% 2,649,818 10 4,357,943 41 12,548,799 $5.88

2015 3q 7,015 280,345,409 17,909,174 6.4% 3,640,913 10 4,295,696 37 13,486,773 $5.78

2015 2q 7,006 276,120,397 17,325,075 6.3% 1,320,925 8 2,508,040 32 13,553,214 $5.66

2015 1q 6,998 273,612,357 16,137,960 5.9% (515,946) 3 1,363,967 26 10,204,502 $5.52

2014 4q 6,995 272,248,390 14,258,047 5.2% 4,715,380 11 4,097,613 19 8,324,118 $5.56

2014 3q 6,985 268,155,976 14,881,013 5.5% 5,929,306 11 5,980,081 25 11,173,913 $5.43

2014 2q 6,974 262,175,895 14,830,238 5.7% 2,314,703 4 2,784,912 25 10,687,985 $5.37

2014 1q 6,971 259,426,983 14,396,029 5.5% 2,102,011 3 1,279,960 25 11,713,910 $5.35

2013 4q 6,968 258,147,023 15,218,080 5.9% 2,671,077 4 1,526,207 25 11,687,360 $5.24

2013 3q 6,965 256,623,375 16,365,509 6.4% 3,361,663 8 3,070,634 21 10,777,505 $5.28

2013 2q 6,957 253,552,741 16,656,538 6.6% 2,001,911 3 1,719,005 19 8,061,727 $5.20

2013 1q 6,954 251,833,736 16,939,444 6.7% 2,693,638 2 752,682 20 9,420,925 $5.11

2012 4q 6,953 251,155,801 18,955,147 7.5% 2,764,216 5 2,182,676 13 5,237,991 $5.05

2012 3q 6,948 248,973,125 19,536,687 7.8% 432,874 3 2,274,943 13 4,575,926 $5.04

2012 2q 6,945 246,698,182 17,694,618 7.2% 1,534,437 1 7,347 13 5,151,581 $4.99


UC InventoryDelivered InventoryExisting Inventory Vacancy

(1.000)

0.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

2013 1q 2013 2q 2013 3q 2013 4q 2014 1q 2014 2q 2014 3q 2014 4q 2015 1q 2015 2q 2015 3q 2015 4q 2016 1q

Millions

SF

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Perce

nt V

aca

nt

Delivered SF Absorption SF Vacancy

$5.30

$5.40

$5.50

$5.60

$5.70

$5.80

$5.90

$6.00

2015 1q 2015 3q 2016 1q

Dollars

/SF/Y

ear

0.00

5.00

10.00

15.00

20.00

25.00

2015 1q 2015 3q 2016 1q

Millions

SF

Direct SF Sublet SF







I n l a n d E m p i r e W e s t M a r k e t

Deliveries, Absorption & Vacancy Historical Analysis, Flex and Warehouse


Vacant Space Quoted Rental RatesHistorical Analysis, Flex and Warehouse Historical Analysis, Flex and Warehouse


Net QuotedPeriod # Bldgs Total RBA Vacant SF Vacancy % Absorption # Bldgs Total RBA # Bldgs Total RBA Rates

2016 1q 5,764 273,030,827 11,317,494 4.1% (2,159,640) 5 1,237,063 24 4,599,771 $5.86

2015 4q 5,759 271,793,764 7,920,791 2.9% 4,460,701 5 1,672,575 24 5,422,014 $5.69

2015 3q 5,754 270,121,189 10,708,917 4.0% 3,941,547 9 4,966,288 17 4,582,745 $5.64

2015 2q 5,746 265,406,644 9,935,919 3.7% 3,895,232 8 2,022,925 20 7,970,300 $5.52

2015 1q 5,738 263,383,719 11,808,226 4.5% 2,173,579 1 416,640 24 8,861,618 $5.42

2014 4q 5,739 263,496,523 14,094,609 5.3% 1,359,819 0 0 17 8,241,226 $5.41

2014 3q 5,739 263,496,523 15,454,428 5.9% 1,953,871 5 2,029,990 14 7,485,723 $5.25

2014 2q 5,734 261,466,533 15,378,309 5.9% 205,906 15 4,096,059 8 4,181,624 $5.20

2014 1q 5,719 257,370,474 11,488,156 4.5% 1,206,366 4 1,077,139 22 7,861,043 $5.15

2013 4q 5,716 256,300,815 11,624,863 4.5% 2,377,703 1 300,300 22 6,278,269 $5.18

2013 3q 5,716 256,296,615 13,998,366 5.5% 2,102,773 4 1,257,931 16 4,849,945 $5.07

2013 2q 5,712 255,038,684 14,843,208 5.8% 573,389 4 414,660 8 2,505,666 $5.01

2013 1q 5,708 254,624,024 15,001,937 5.9% 2,659,681 6 1,822,024 10 2,474,956 $4.96

2012 4q 5,703 252,885,000 15,922,594 6.3% 2,381,399 0 0 14 3,274,754 $4.90

2012 3q 5,704 253,295,140 18,714,133 7.4% (1,016,971) 7 816,236 12 2,766,104 $4.87

2012 2q 5,698 252,481,204 16,883,226 6.7% 19,986 2 812,243 11 1,958,761 $4.86


UC InventoryDelivered InventoryExisting Inventory Vacancy

(3.000)

(2.000)

(1.000)

0.000

1.000

2.000

3.000

4.000

5.000

6.000

2013 1q 2013 2q 2013 3q 2013 4q 2014 1q 2014 2q 2014 3q 2014 4q 2015 1q 2015 2q 2015 3q 2015 4q 2016 1q

Millions

SF

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Perce

nt V

aca

nt

Delivered SF Absorption SF Vacancy

$5.20

$5.30

$5.40

$5.50

$5.60

$5.70

$5.80

$5.90

2015 1q 2015 3q 2016 1q

Dollars

/SF/Y

ear

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2015 1q 2015 3q 2016 1q

Millions

SF

Direct SF Sublet SF

CoStar Office Report Empire Industrial Market ©2016 CoStar Group, Inc. The CoStar Industrial Report...

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