11 th Annual SCCAI: Inland Empire Market Trends Seminar

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1 11 th Annual SCCAI: Inland Empire Market Trends Seminar Industrial Market Overview: East End Dain Fedora, Client Services Manager June 5, 2008

2 ECONOMY, n. Purchasing the barrel of whiskey that you do not need for the price of the cow that you cannot afford. - Ambrose Bierce

3 U.S. Industrial Market Under Construction (million square feet) Q/08

4 2007 1Q/ Inland Empire Industrial Market Under Construction 25,000,000 20,000,000 15,000,000 10,000,000 (square feet) 5,000,

5 Inland Empire, 1Q/2008 Construction Stats vs. The Nation vs. The Region 18% of the nation s industrial under construction activity was in the Inland Empire in Southern California, the Inland Empire accounted for 83% of total construction activity.

6 Industrial - Completed Inventory, by Market Los Angeles, 55.9% Inland Empire, 22.2% San Diego, 9.4% Orange County, 14.9%

7 Industrial Construction Inventory, by Market Inland Empire, 82.8% Los Angeles, 11.2% San Diego, 3.3% Orange County, 4.2%

8 Industrial Completions, by Year (in sq. ft.) Inland Empire 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, YTD

9 Port Traffic A MAJOR FACTOR From 2000 to 2006, containerized volume through the ports has gone from 9.5 million TEUs to 15.8 million By 2010 this number will jump to 19.7 million By 2030 it will reach 42.5 million Source: Port Import Export Reporting Service; forecast: Moffatt & Nichol Engineers

10 Port Container Traffic Ports of Los Angeles & Long Beach, (million TEUs) TEU = 20 foot equivalent container units Source: Ports of Los Angeles & Long Beach, SCAG

11 Where is Development Occurring as cities west of I-15 become built-out?

12 Answer: I-215 South Corridor

13 East End Industrial Inventory vs. Vacancy Rate 160,000,000 A 116% jump in the base since % 140,000, % 120,000, % (square feet) 100,000,000 80,000, % 6.00% 60,000, % 40,000, Q/08 Industrial Inventory Vacancy Rate 2.00%

14 East End YTD Sale & Leasing Activity 14,000,000 Hmmm. 12,000,000 10,000,000 (square feet) 8,000,000 6,000,000 4,000,000 2,000, Q/08 Sale & Leasing Activity

15 East End Notable Transactions Solo Cup Rialto 882,230 sf Ross Stores Inc. Moreno Valley 686,400 sf Ashley Furniture Redlands 683,269 sf

16 East End Notable Transactions 2005 (continued) Minka Lighting Moreno Valley 532,926 sf Burlington Coat Factory San Bernardino 439,570 sf MGA Toys Rialto 435,733 sf

17 East End Notable Transactions Tesco PLC March JPA 820,400 sf Lamps Plus Redlands 784,280 sf Broyhill Furniture Industries Rialto 703,176 sf

18 East End Notable Transactions, 2006 (continued) PACTIV Corp. San Bernardino 586,020 sf Lowes Moreno Valley 507,995 sf Kuehne & Nagel Logistics Rialto 493,900 sf

19 East End Notable Transactions, 2006 (continued) Exel Logistics Redlands 446,050 sf Payless Shoes Redlands 415,000 sf Commodity Logistics Rialto 371,335 sf

20 East End Notable Transactions, 2007 Skechers USA, Inc. Moreno Valley 1,800,000 sf Whirlpool Corporation Perris 1,686,590 sf Kimberly Clark Redlands 699,350 sf

21 East End Notable Transactions, 2007 (continued) Kimberly Clark Redlands 699,350 sf United Natural Foods, Inc. Moreno Valley 613,174 sf Homedics San Bernardino 598,865 sf

22 East End Notable Transactions, 2007 (continued) Weber Distribution Redlands 564,161 sf ICON Health & Fitness Redlands 411,879 sf Kia Motors America Riverside 403,549 sf

23 East End Notable Transactions, 2008 Hanes* Perris 1,309,754 sf Kohler Consumer Group San Bernardino 480,340 sf

24 East End Under Construction A 264% increase since ,000,000 15,000,000 (square feet) 12,000,000 9,000,000 6,000,000 3,000, Q/08 Under Construction

25 Now VS. Then How were 1Q/2008 s numbers compared to one year ago?

26 Inland Empire, 1Q/2008 Vacancy Rate Under Construction YTD Sale & Leasing Activity Asking Rental Rates (whse/dist space) 6.5% (up from 4.4%) 22 million sf (down from 24.2 million sf) 3.5 million sf (down from 8 million sf) $0.43 NNN/sf/month (up from $0.41 NNN)

27 East End, 1Q/2008 Vacancy Rate Under Construction YTD Sale & Leasing Activity Asking Rental Rates (whse/dist space) 12.5% (up from 8%) 14.8 million sf (down from 20.2 million sf) 1.6 million sf (parallel, 1.6 million sf) $0.41 NNN/sf/month (parallel, $0.41 NNN)

28 Industrial: Construction Activity Map, 4Q07

29 Land Values 4-acres, improved industrial land Built-Out Submarkets (cities west of I-15; Ontario/Chino, etc.): $15.50 / SF Developing Submarkets (cities along the I-215 Corridor; Perris/Moreno Valley): $8.00 / SF High Desert Submarkets (to be widely developed over the next 5 years; Victorville, etc.): $4.50 / SF

30 The Market s Pulse Opportunities Available Land Owner-Built / BTS Flexibility Consolidation / Expansions Affordable Pricing vs. Surrounding Markets DHL March Global Port Proximity to the Ports Economic Incentives Challenges Likely slowdown in import activity High Construction Costs Credit Financing Higher Cost of Business in CA Traffic Issues Backbone Infrastructure ($$$)

31 Conclusion Short-term Speculative buildings will encounter longer shelf lives than their counterparts in the market s western reach Developers will scale back on future construction Leases in excess of 500,000 sq. ft. will drive 2008 s activity

32 The High Desert: The Next Growth Market

33 Top 15 U.S. Ports, 2007

34 Conclusion Long-term The Inland Empire is one of Southern California s last industrial growth markets, and with vacancy rates at record lows in neighboring markets where land is nonexistent mass development will continue along the I-215 Corridor, and progress in the High Desert.

35 Thank You Dain Fedora Client Services Manager Grubb & Ellis Company