Inland Empire Regional Intelligence Report
This edition traces how the Inland Empire economy has performed since the outbreak of the COVID-19 virus including exploring the economic damage that has been caused and how quickly the region will recover now that an effective vaccine is available.
EMPLOYMENT AND WAGES
The Inland Empire’s labor market has continued to steadily recover from the COVID-19 pandemic, adding 93,100 jobs since April’s lows. Despite the ongoing labor market recovery, year-over-year employment fell 7.1% (-110,600 jobs), one of the largest annual declines on record. Even so, employment growth in the Inland Empire is outpacing that of the state (-7.8%) but has trailed the nation (-6.1%) over the last year. With cases surging in Southern California, another round of stay-at-home orders implemented in December will impact that month’s growth. But with multiple vaccines on the way, containing the virus, which is the main impediment to sustained economic growth, is in sight.
The Inland Empire’s unemployment rate has also improved from the highs of early this year. At 9.2%, it’s still a far cry from the 4.0% rate one year ago, but is now below California’s rate of 9.3%.
Although unemployment rates remain elevated, the region’s labor force has largely recovered. From October 2019 to October 2020, 28,300 workers entered the Inland Empire’s labor force, a 1.4% increase. This increase is in stark contrast to declines in the state (-1.1%) and nation (-2.1%) over the period. Without the decrease in California’s labor force, the state’s unemployment figure would be even higher than the Inland Empire’s.
Unsurprisingly, the largest job losses have been concentrated in the region’s Leisure and Hospitality sector, with 27,600 fewer workers than a year earlier, a 27.6% decline. Other significant job losses have occurred in Government, Manufacturing, Retail Trade, Other Services (a sector that includes hair and nail salons), and Administrative Support. These are the sectors most impacted by government mandates and consumer reticence. The stay-at-home orders implemented in December will also impact employment levels in these sectors.
The UCR Center for Economic Forecasting’s outlook remains optimistic, however. With a vaccine on its way, containment of the virus is in sight, and these sectors should have significant job gains as companies ramp up production to meet surging consumer demand.
Although job losses have been widespread, a few bright spots exist. The surge in e-commerce has helped keep the region’s Transportation and Warehousing resilient over the last several months. Payrolls in Transportation and Warehousing expanded by 100 employees over the last year, compared with a 3.3% decline in the state overall over the period. The Management sector has also expanded its payrolls over the last year, adding 200 employees.
Wages in the Inland Empire have been steadily rising, although some of this is due to the loss of jobs in lower-paying industries like Leisure and Hospitality and Retail Trade. From the second quarter of 2019 to the second quarter 2020, wages grew 4.6%, trailing the 6.6% pace in California overall. Wage growth in the Inland Empire was strongest in Riverside County, where they increased 5.1%. Wages in San Bernardino County grew 4.1%.
COVID-19 TRENDS AND BUSINESS ACTIVITY
Containing COVID-19 will be essential to sustaining the economic recovery in the Inland Empire and the nation. As of the middle of December, cases in the Inland Empire were surging. As of December 9, San Bernardino County averaged 2,123 new cases each day over the last seven days, and Riverside County averaged 3,061. This is a substantial increase from September and October, when each county averaged about 400 new daily cases. The state has already reimplemented stay-at-home orders for Southern California because of this surge. Lowering the number of new cases will be essential for the region to meet the state’s requirements for reopening more of the economy in the coming weeks and months.
The increase in COVID-19 cases is also leading to more hospitalizations related to the pandemic. As of December 9, a record-high 1,869 people were hospitalized with virus symptoms in the Inland Empire, well above the previous high in July. This is a troubling sign for local hospitals, which must shift resources to COVID-19 patients and available ICU beds become scarce.
From the second quarter of 2019 to the second quarter of 2020, taxable receipts in the Inland Empire fell 8.4%. Declines were most pronounced at Fuel and Service Stations: 42.4%. This is due to less car travel during the pandemic and a decline in global oil prices. Other sectors with significant declines in consumer spending were Restaurants and Hotels (-31.5%) and General Consumer Goods (-31.0%). This shouldn’t come as a surprise given that these were the sectors most impacted by the initial stay-at-home orders in the second quarter.
The pandemic has led to a surge in spending at some locations. With people eating more at home, spending is up 12.7% year over year at Food and Drug stores. The Inland Empire’s Construction sector has also been aided by the pandemic: With people spending more time at home, many have done home upgrades in recent months, so spending at Building and Construction stores grew 5.5% year over year.
RESIDENTIAL REAL ESTATE
Home prices in the Inland Empire continue to increase steadily. From the third quarter of 2019 to the third quarter of 2020, the median single-family home price rose 12.0%. This was in line with growth in other parts of Southern California, with Los Angeles (14.5%), Orange (11.1%), and San Diego (13.6%) counties also posting sizable gains.
The Inland Empire remains one of the last markets for relatively affordable housing in Southern California. At a median price of $416,000, its existing single-family homes are significantly more affordable than those in Los Angeles ($736,000), San Diego ($701,000), and Orange ($866,000) counties.
Demand for homes in the Inland Empire also remains relatively strong. After sales dropped during the second quarter of 2020 because of the pandemic, they surged in the third quarter. Indeed, the third quarter had the highest level of home sales in the region since 2010. Despite the resurgence, existing single-family home sales dropped 2.9% in the Inland Empire from year-to-date 2019 to year-to- date 2020 (through the third quarter), less than in Los Angeles (-10.4%), San Diego (-3.6%), and Orange (-2.4%) counties.
The apartment market in the Inland Empire has also had a solid year. Vacancy rates grew to 3.7%, a 0.2-percentage-point increase from a year earlier, but this was driven by an increase in multifamily construction. Indeed, the number of occupied units increased 1.1% over the last year. Asking rents grew 3.7% to $1,454 per unit per month, but that figure still keeps the Inland Empire more affordable than Los Angeles ($2,014), San Diego ($1,868), and Orange ($1,958) counties.
2020 has been a mixed bag for residential construction in the region. The Inland Empire issued 1,150 multifamily permits and 8,687 single-family permits in the first three quarters, a change of -65.1% and -22.1% respectively.
COMMERCIAL REAL ESTATE
Vacancy rates for warehouse properties in the Inland Empire increased to 10.6% in the third quarter of 2020, a 1.8-percentage-point increase from a year earlier. This increase was driven by new stock coming online rather than a decline in demand; indeed, occupied stock increased 2.3% over the last year. In addition, asking rents grew a modest 1.4% over the last year to an annual rate of $5.81 per square foot, but that still keeps warehouse space in the Inland Empire more affordable than in Los Angeles ($7.96), San Diego ($9.14), and Orange ($7.62) counties.
Demand for office properties has grown in the Inland Empire over the last year. Office vacancy rates in the Inland Empire fell to 16.8% in the third quarter of 2020, down 0.1-percentage-point from a year earlier. Asking rents grew a modest 0.9% over the last year to an annual rate of $23.31 per square foot, keeping office space in the Inland Empire more affordable than in Los Angeles ($40.63), San Diego ($34.32), and Orange ($34.64) counties.
Vacancy rates for flex/R&D properties in the Inland Empire fell to 5.5% in the third quarter of 2020, a 0.1-percentage-point decline from a year earlier. Asking rents grew a modest 0.8% over the last year to an annual rate of $8.87 per square foot, keeping flex/R&D space in the Inland Empire more affordable than in Los Angeles ($13.28), San Diego ($14.40), and Orange ($12.17) counties.
Demand for retail space in the Inland Empire has fallen over the last year as a result of the government mandates and consumer reticence amid the COVID-19 pandemic. Retail vacancies in the Inland Empire grew to 9.9% in the third quarter of 2020, a 0.1-percentage-point increase from a year earlier. Asking rents fell 1.0% to an annual rate of $23.15 per square foot, however, which keeps retail space in the Inland Empire more affordable than in Los Angeles ($33.55), San Diego ($32.41), and Orange ($34.29) counties.
Nonresidential permitting has fallen considerably over the last year. Permit values during the first three quarters of 2020 totaled just $1.58 billion, a 14.8% decline from the same period in 2019. The largest declines were in industrial permitting, which totaled just $348 million during the first three quarters of 2020, off 51.3% from the same period last year. Permitting for office properties, totaling just $21.4 million, was 64.8% lower than 2019 levels. But permit values for retail properties rose 6.9%, totaling $348 million.