Inland Empire Regional Intelligence Report
The data in this report predate the global upheaval created by the COVID-19 pandemic. There is currently tremendous uncertainty among economic forecasters about the full economic impact the outbreak will have on global trade and the global economy. In the Inland Empire, in particular, the crisis will likely affect the region’s Leisure and Hospitality and Logistics sectors due to a slowdown in travel and tourism and supply chain delays. Given the circumstances, the Center for Forecasting is releasing its original analysis to define and illustrate the position the regional economy was in upon entering this crisis period. Please see our national and state forecast for more about the broad economic fallout expected as result of the COVID-19 outbreak and halt in economic activity.
Employment growth in the Inland Empire is still surpassing statewide gains, with increases led by the Health Care, Administrative Support, Government, and Transportation and Warehousing sectors. Wage growth over the past year fueled activity in many sectors, reflected in steady increases in taxable sales. Sustained demand also drove growth in residential and commercial real estate.
Employment in the Inland Empire is continuing to expand steadily, according to California’s Employment Development Department. From December 2018 to December 2019, the region added 30,800 nonfarm jobs, a 2.0% increase. This edged out the 1.8% gains in the state and the 1.4% gains in the nation. Although employment growth remains steady, a tight labor market slowed it compared with recent years; total nonfarm employment grew 2.3% from December 2017 to December 2018 and 4.1% from December 2016 to December 2017.
Wages also increased steadily. Overall nominal earnings grew 3.1% from the first three quarters of 2018 to the first three quarters of 2019, increasing 3.2% in Riverside County and 2.9% in San Bernardino County. Over the same period, nominal wages statewide grew 2.1%, trailing the performance in the Inland Empire. But there is tremendous uncertainty over the full economic impact COVID-19 will have on global trade and the global economy.
The region’s labor force grew more slowly. From December 2018 to December 2019, it expanded just 0.3%, increasing by just 5,800 workers. Even so, this outpaced Orange County (-0.2%) and California (0.2%) over the period. With steady gains in household employment (14,400), which outpaced labor force gains, the unemployment rate in the Inland Empire fell to 3.8% in December 2019, a 0.4-percentage-point decline from a year earlier.
At the industry level, job growth was broad-based, with most Inland Empire sectors having expanded payrolls over the year. Education and Health Care provided the most new jobs; payrolls grew by 14,200 (5.8%) from December 2018 to December 2019. The Administrative Support sector was second, adding 6,700 (6.7%) jobs. The Government sector also continued to grow, with payrolls increasing by 5,900 (2.3%). Most of the new Government positions came from Local Government (5,100), with Local Government Education (2,500) driving much of the growth. This was followed by Transportation and Warehousing, which added 4,000 (3.1%) jobs, and Leisure and Hospitality’s 1,600 (0.9%).
A few sectors lost positions over the last year. Losses were highest in Natural Resources and Construction, which shed 2,600 jobs (-2.5%). Other Services reduced payrolls by 1,100 (-2.4%), and Wholesale Trade cut 500 jobs (-0.7%)
Continued gains in employment levels and wages helped boost local spending. From the third quarter of 2018 to the third quarter of 2019, taxable sales in the Inland Empire increased 2.2%, outpacing the state overall (1.8%). Riverside County’s overall taxable sales increased 3.4% during the period, and within the County, Jurupa Valley (20.5%), and Perris (10.6%) had considerable gains, while taxable sales declined slightly in Riverside (-0.2%) and Corona (-1.7%). In San Bernardino County, taxable sales increased 1.1%, and within the County, Fontana (7.5%), Victorville (5.3%), San Bernardino (4.4%), and Ontario (5.4%) led the way.
Nearly every spending category in the Inland Empire grew over the last year. Construction was the standout, with Building and Construction sales tax receipts increasing 4.4% from the third quarter of 2018 to the third quarter of 2019. This increase indicates that developers are using local suppliers for projects and, more importantly, are building at least some of the housing stock needed for sustained growth in the region. Business-to-business activity also grew. Business and Industry sales tax receipts increased 4.4% from the third quarter of 2018 to the third quarter of 2019.
Consumer spending at Restaurants and Hotels increased 3.4%, followed by Autos and Transportation, which grew 1.9% over the period. Economic trends were good for Hospitality and Tourism. Following the gains in Leisure and Hospitality employment and Restaurant and Hotel spending, passenger traffic at Ontario International Airport continued to expand. A total of 5.58 million passengers passed through the airport in 2019, a 9.1% increase over 2018. As for COVID-19, a March 4 report from the Federal Reserve Bank of Richmond suggests that the coronavirus is hurting travel and tourism in the U.S. As a result, airlines, large hotels, and conference centers could experience significant downturns in the second and third quarters.
Trade through the Ports of Long Beach and Los Angeles totaled $371.1 billion in 2019, an 8.9% decrease from 2018. Total trade with China had the steepest decline, falling 18.9% to $165.3 billion. But this decline was partly offset by a significant increase in trade with Vietnam, which increased 16.3% to $27.5 billion. The Federal Reserve Bank of Richmond reported that manufacturing had expanded in most parts of the country, but some supply chain delays were reported as a result of the coronavirus, and several Federal Reserve Districts said producers feared further disruptions in coming weeks. It is worth noting that new cases of the virus have apparently been slowing in China, and economic activity there may be rising modestly, based on daily energy consumption data economists often use to analyze the Chinese economy.
RESIDENTIAL REAL ESTATE
The Inland Empire remains one of the last bastions of relatively affordable real estate in Southern California. This affordability advantage, coupled with the region’s combination of space, amenities, and proximity to job centers, has helped drive continued gains in home prices.
The median price of an existing single-family home in the Inland Empire was $379,240 in the fourth quarter of 2019, a 6.2% increase from a year earlier. Year-over-year price gains in the region surpassed those statewide (5.6%) and in Los Angeles County (5.7%), Orange County (3.3%), and San Diego County (4.5%). Affordability remains a strong selling point for real estate in the Inland Empire and should continue to attract buyers. This demand should also lead to modest price appreciation over the next year. From a longer-term perspective, additional housing stock will be critical to attracting residents and strengthening the Inland Empire’s employment base.
As in much of the state, Inland Empire home sales remain stable. A total of 55,483 were sold in 2019, up 0.5% from a year earlier. Rising interest rates at the start of the year pushed first-quarter home sales to their lowest level since 2015, but the recent downward pressure on rates helped increase sales in the second half of the year.
With homeownership out of reach for many Inland Empire residents, demand in the rental market remains strong. Although new units pushed up apartment vacancy rates from recent lows, the rate stood at 3.3% in the fourth quarter of 2019, lower than in Los Angeles (3.8%), Orange (3.7%), and San Diego (3.9%) counties. Average asking rent was $1,430 in the fourth quarter of 2019, up 4.3% from the same period a year earlier. Renters enjoyed significant cost savings over the coastal markets, with average asking rents significantly higher in Los Angeles ($2,081), Orange ($2,000), and San Diego ($1,889) counties.
Residential construction in the Inland Empire reached its highest level since 2007. Residential permits totaled 14,437 in 2019, 6.4% more than in 2018. Most were for single-family units, which fell 1.6% to 10,055 units in 2019. Multifamily permitting increased significantly over the last year, with 3,882 issued in 2019, a 37% increase over the same period the previous year. Given that population growth in Riverside County (1.1%) and San Bernardino County (1.0%) outpaced that of the state (0.5%), Los Angeles County (0.0%), and Orange County (0.3%) from 2018 to 2019, construction will need to increase to preserve the region’s affordability and enable sustained population growth.
COMMERCIAL REAL ESTATE
The commercial real estate market remains strong, tracking employment levels, population, and consumer and business spending. New stock continues to come online, vacancy rates remain stable, and rents remain affordable relative to Los Angeles, Orange, and San Diego counties.
The expanding Logistics sector increased demand for warehouse and distribution space. New stock, rather than declining demand, caused the vacancy rate to increase to 9.2% in the fourth quarter of 2019, a 0.7-percentage-point increase from the fourth quarter of 2018. In addition, the 2.5% gain in asking rents from the fourth quarter of 2018 to the fourth quarter of 2019 reaffirmed that demand for warehouse and logistic space remained strong. Asking rent grew faster in the Inland Empire than in Los Angeles County (1.5%) and Orange County (1.3%). Despite the uptick in vacancy rates, businesses sought out warehouse and distribution center space, with occupied warehouse stock growing by 10.3 million square feet (2.8%) from the fourth quarter of 2018 to the fourth quarter of 2019.
Research and development industrial space was also in high demand. Vacancy rates held steady at 5.1% in the fourth quarter of 2019, the same as a year earlier. Asking rents also rose steadily, increasing 2.8% to an annual rate of $8.85 per square foot from the fourth quarter of 2018 to the fourth quarter of 2019. Asking rent grew faster in the Inland Empire than in Orange County (1.4%), but slower than in Los Angeles County (2.9%) and San Diego County (3.0%). More importantly, asking rents remained significantly more affordable, with Inland Empire companies paying roughly 33% less than in Los Angeles County and 27% less than in Orange County.
Demand for retail space remained fairly stable over the year, mirroring the lack of employment gains in Retail Trade. Retail vacancy rates inched up from their lowest point since before the recession, increasing to 9.9% in the fourth quarter of 2019, a 0.4-percentage-point increase from a year earlier. This increase, however, occurred as 211,000 square feet of retail space came online over the last year. Strong demand drove the average asking rent to an annual rate of $23.27 per square foot in the fourth quarter of 2019, a 1.1% increase over the fourth quarter of 2018.
Rising employment increased demand for office space in the Inland Empire. Vacancy rates remained steady at 16.5% in the fourth quarter of 2019, a 0.3-percentage-point decrease from a year earlier. At the same time, the average asking rent for office space increased to an annual rate of $23.23 per square foot, up 1.3% from a year earlier. Inland Empire businesses get significant cost savings relative to Los Angeles and Orange counties. In addition, asking rents grew more rapidly in these coastal markets over the past year, increasing 4.0% in Los Angeles County, 3.0% in San Diego County, and 2.6% in Orange County.
After several years of steady increases, nonresidential permitting slowed in 2019. Nonresidential permits values fell 7.5% from 2018 to 2019, reaching just over $2.4 billion in total value. A significant portion of the permitting was for industrial space, with valuations totaling over $919 million in 2019, a 2.8% decline from 2018. Permitting for retail space also increased, with $466 million in permits issued in 2019, roughly 8.1% higher than 2018. Permitting for office space sustained the largest decline, with valuations totaling just $98.4 million in 2019, a 20% decrease relative to 2018.