IRVINE, CA-Few industrial markets are hotter right now than the Inland Empire, and the market continues to heat up as demand for high-cube warehouses in Southern California grows. GlobeSt.com caught up with John Condas, a partner with Allen Matkins Leck Gamble Mallory & Natsis LLP—who will be moderating a panel on the Inland Empire industrial market during RealShare Inland Empire on January 28th—to discuss why this market is so strong, the outlook for development and the factors that are creating opportunities there.

GlobeSt.com: Why is the Inland Empire a major industrial center right now?

Condas: Two things: location and more reasonable land costs. Basically, what’s been really vibrant there for the last couple of years is the development of high-cube warehouses, logistics facilities. Goods come in from Asia to the big ports and get transported to the Inland Empire and then broken down, repackaged and shipped within California and throughout the country. Urgent things that need to be shipped quickly will be shipped by truck, and other items that are not time sensitive are shipped by rail. Also, the land costs in the L.A. basin are so much higher that they tend to have smaller buildings there. The Skechers facility in the Moreno Valley is over 1 million square feet—there’s no way a building of that size could be done in the L.A. area.

GlobeSt.com: What do you think is driving spec development in the I.E.?

Condas: The brokers would know better, but one to 1.5 years ago, there were no buildings in the I.E. greater than 500,000 square feet that were vacant. When you have a shortage of supply of product that people want, there’s going to be spec development.

GlobeSt.com: Where are we in this development cycle?

Condas: I’d say we’re in the fourth or fifth inning. We’re not even close to the end of that cycle.

GlobeSt.com: What factors are changing the current market and creating opportunities?

Condas: It’s interesting that a couple of years ago when we had no big buildings available, smaller buildings were vacant and there was no interest in them. The way the market has improved, there has been some job growth, and smaller buildings are even more valuable than they were, and the prices are going up on those. It’s hard for manufacturing jobs to stay or enter California given the regulatory structure that is faced, but I think that job growth will primarily be used for warehousing and logistics.

Many of these jurisdictions are still hurting financially with the dissolution of the RDAs and the slowdown of the last four to five years. The perception is that these facilities don’t create any revenue for the government—that they just wreck roads and create pollution—but that’s not true. We hired Beacon Economics and David Taussig to analyze the economic impact of these mega-warehouses on cities, and there is conclusive evidence that these facilities do benefit the cities. Also, cities really do like fulfillment centers because of the sales tax generated.

The only fly in the ointment is that there’s a lot of regulatory opposition to them. South Coast Air Quality Management District and the EPA are promulgating information that these facilities are polluting and detrimental. A lot of regulatory developments are on the horizon, and they’re causing our clients a lot of headaches.