Pacific Industrial has completed the largest non-portfolio industrial property disposition in California in the past 24 months with the sale of Sierra Pacific Center, a two-building, 1,495,208-square-foot, class A industrial facility in Fontana, Calif.
“We had the opportunity to sell this 1.5 million-square-foot property at a record cap rate of 3.68 percent, and we are simultaneously developing 1.5 million square feet of new best-in-class industrial properties in other Southern California markets,” said Dan Floriani, partner and co-founder of Pacific Industrial. “This activity speaks to a continued institutional appetite for industrial developments where tremendous value creation with the right developer is not only possible, it’s been proven.”
The firm sold the asset to an institutional life insurance company for a total consideration of $213.5 million.
“This is a stable, cash-flowing asset in an exceptional location with investment-grade tenancy and key features that are unlike any other industrial property in the Western United States, giving the buyer a property that can be profitably held for the long term,” added Floriani.
This property, which is fully leased to LG Electronics and FedEx, is one of the first ground-up developments completed by Pacific Industrial.
“This is a substantial core investment property in the top industrial submarket in the nation,” said Jeff Chiate, executive managing director of Cushman & Wakefield’s national industrial advisory group, who represented Pacific Industrial in the disposition. “The Inland Empire West market posted the most lease transactions above 500,000 square feet in the nation last year. Market fundamentals in this region continue to be exceedingly strong, with vacancy rates at a record-low 2.0 percent. With this knowledge and a deep expertise in investment-grade industrial property, our team recognized the true potential in the asset, and we were able to attract a competitive pool of high-quality buyers.”
Due to some uncertainty going into 2019, developers and users in the Inland Empire rushed to complete deals and product deliveries by year-end 2018, reported Cushman & Wakefield’s Inland Empire industrial first quarter 2019 report.
This led to a record-breaking 2018, but a slow — yet still healthy — start to 2019. Occupancy gains of 1.7 million square feet kept absorption positive for the 39th consecutive quarter, with Inland Empire East absorbing 2.1 million square feet of space. Since 2014, the Inland Empire has averaged 22 million square feet annually in positive absorption, and although off to a slow start, 2019 should still approach 20 million square feet of occupancy gains. Now considered an infill market, leasing activity of 4.9 million square feet helped Inland Empire West recapture its advantage and topped the region in leasing velocity, a feat it had lost to Inland Empire East for two consecutive quarters. Although the vacancy rate in the IE West increased 50 basis points to 2.5 percent in first quarter 2019, much of that has been considered frictional movement from the record low of 2 percent at year-end 2018. Conversely, Inland Empire East vacancy dropped 30 basis points to 6.4 percent, despite delivering 1.8 million square feet in construction, a testament to the demand in the region and the submarket’s unique ability to deliver large blocks of land that can be assembled to accommodate large big-box buildings. Development activity remained strong with projects under construction increasing to 29.9 million square feet, compared to 25.6 million square feet in first quarter 2018.
Although total retail sales growth is forecast to decelerate from 5.1 percent in 2018 to 4.4 percent in 2019, e-commerce sales are expected to grow 15.1 percent to $605.3 billion in 2019. Consequently, the need for warehousing and distribution space will only increase in the Inland Empire. Combined with robust volumes at the San Pedro Bay ports, the Inland Empire will continue to see record growth and remain one of the dominant industrial markets in the United States.