Last year, office supply manufacturer Safco Products was looking to expand its distribution center near the Port of Los Angeles.
Unable to find anything suitable close to their existing facility after a six-month search, the subsidiary of Liberty Diversified Industries settled on a large warehouse far away on the border of Moreno Valley in Riverside County.
"They wanted 200,000 square feet of Class A industrial space. There was nothing available in the mid-cities area in L.A. County and there was nothing available in the Ontario market," said Mark Kegans, senior vice president with the Ontario office of Grubb & Ellis Co. "So they came clear out to the Riverside/Moreno Valley area."
Safco, whose parent is based in New Hope, Minn., represents just the tip of the latest wave of industrial development that is transforming the Inland Empire and bedroom communities such as Moreno Valley and some say posing a threat to the long-term economic health of Los Angeles County.
Tilt-up warehouse and industrial buildings are going up by the dozen in this 49-square mile city, bolstered by cheap land, easy access to freeways that leaves trucks just an hour or so away from Los Angeles' booming ports, at least during off hours.
Consider the numbers: in the 18 months ending in Dec. 2006, 3.8 million square feet of industrial space was completed and came on line in Moreno Valley. Another 3.1 million square feet is currently under construction, scheduled for completion later this year. And 5.5 million square feet are in the planning stages.
By comparison, for all of Los Angeles County, slightly over 5 million square feet of industrial space is under construction.
Much of the credit for the boom in Moreno Valley is due to the increasingly tight conditions in L.A. County and the western reaches of the Inland Empire, especially Ontario and Corona. With vacancy rates in many parts of L.A. County under 2 percent, the L.A. market has just about completely filled up. And the Ontario/Rancho Cucamonga market that for years has accepted overflow from L.A. is itself filling up, as industrial vacancy rates there have sunk into the single digits.
"Markets like San Bernardino, Redlands, Rialto, Moreno Valley and Perris have become the new catcher's glove for the L.A. market," Kegans said.
But what is L.A.'s problem has become Moreno Valley's gain. And city officials there are using their good fortune to address one of the city's shortcomings: a lack of local jobs.
For the last 20 years, the city's population has been growing steadily; last year it was the sixth-fastest growing city with a population over 100,000 in the U.S. As of Jan. 2006, the state Department of Finance estimated the city's population at 174,500, up 22 percent from Jan. 2000.
With that kind of growth, retail development soon followed, with a spate of recently opened shopping malls and big-box stores. But most residents continue to drive the freeways to jobs in Los Angeles and Orange counties, jamming up the Riverside (91) and Moreno Valley/Pomona (60) freeways.
"We're now trying to produce jobs locally so that people don't have to drive the freeways. And that means industrial tenants and office development," said Barry Foster, director of economic development for Moreno Valley.
The city has zoned large tracts of land for industrial development, clearing the way for major industrial parks and tenants.
In late 2005, for example, Pleasanton, CA-based Ross Stores Inc. built a 686,000-square-foot warehouse and distribution center there, while Mooresville, N.C.-based Lowe's Companies Inc. set up its own regional warehouse nearby.
Around the same time, DHL Holdings USA (the U.S. subsidiary of Belgian giant DHL Worldwide Network S.A.) set up a 380,000-square-foot Southern California cargo hub next to the former March Air Force Base just outside the Moreno Valley city limits. DHL runs several cargo flights a day from the former base.
Foster said that with more than 8 million square feet of industrial space due to come on line this year and in subsequent years, he expects continued brisk movement of industrial and distribution companies into Moreno Valley.
Local brokers agreed.
"Companies just can't find industrial space in L.A. or Ontario. They are going to keep coming east to places like Moreno Valley for quite some time," said Ian DeVries, senior vice president with CB Richard Ellis Group Inc.
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