Empire Building
“Just-in-time” delivery often starts in the Inland Empire, where the latest technology is being installed in some of the biggest warehouses in the country, creating a distribution hub with few rivals.
More than 88 million square feet of new industrial space has been built in the last 10 years in the two-county region to the east of Los Angeles County, much of it in warehouses of several hundred thousand square feet or more.
The 10-year building binge has doubled industrial space in Riverside and San Bernardino counties, where almost three times as much new industrial space has been built as in L.A. County in the last five years. The industrial market there now outranks three of L.A. County’s five industrial markets, trailing only the Central Los Angeles and South Bay industrial markets, and the Inland Empire is fast catching up to the South Bay.
The Inland Empire has become such a location of choice for big companies looking for large warehouses that L.A. economist Jack Kyser has been sounding an alarm lately.
“We’re losing businesses that might otherwise locate in L.A. County,” said Kyser, chief economist for the Los Angeles County Economic Development Corp. “When an out-of-town company asks us where it can find 100,000 square feet of quality warehouse space, we wince.”
The operative phrase in Kyser’s comment is “quality.”
L.A. County has plenty of industrial space--nearly 800 million square feet--according to Grubb & Ellis Co.
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But much of that space is already filled, and even when it’s available, it often doesn’t suit the kinds of companies occupying the big warehouses in the Inland Empire.
That’s because the building boom in the Inland Empire isn’t just about space. It’s about space that meets the needs created by wholesale changes in the way U.S. companies distribute goods and track inventory.
With major changes in the last five to seven years, even space built in the late 1980s might not satisfy the requirements of today’s warehouse operators, said Allen J. Anderson, chairman of San Francisco-based Meridian Industrial Trust. Meridian is a real estate investment trust that owns and manages 25 million square feet of space nationwide, including 6 million square feet in Southern California, primarily in the Inland Empire.
Manufacturers and distributors aren’t necessarily using more space, but they are moving operations in numerous older, smaller buildings to larger buildings in strategic distribution locations, Anderson said.
The new sites are chosen for their proximity to ports, freeways, rail lines and airports as part of an effort to achieve just-in-time distribution, Anderson said.
The goal of just-in-time systems is to distribute goods in just the right quantities at just the right time to avoid surpluses and shortages. Such distribution has become possible only in recent years with the advent of bar coding, powerful computer systems and other technologies that permit detailed tracking of inventory from manufacture to final sale, Anderson said.
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“Virtually every piece of merchandise today is bar coded and scanned,” Anderson said. Scanning not only rings up the price, it connects to an inventory management system that tells the manufacturer when to produce more goods and the distributor when to ship more inventory. What’s more, the trucks, trains and airplanes carrying goods are hooked into global positioning systems that can show where a shipment of goods is at any time.
An upshot of all of these changes is a demand for a different kind of warehouse space.
Modern warehouses are both larger and taller because modern inventory storage systems stack merchandise considerably higher. Modern buildings also need floors that are far more level because some of the distribution centers depend on electronically guided equipment that requires flat surfaces to operate properly. Level floors also help prevent higher stacks of goods from toppling over. New buildings have more room for trucks to load merchandise and more advanced sprinkler systems, which reduce insurance costs.
Thanks to its strategic location and the availability of land, the Inland Empire is now one of the foremost distribution centers in the United States.
According to Anderson, three regions have become the country’s most popular locations for distribution centers: Los Angeles, Dallas and the Interstate 95 corridor between Philadelphia and New Jersey. Increasingly, he said, companies associate Los Angeles with the Inland Empire.
“The Inland Empire has emerged, clearly, as the major distribution center for Southern California,” said Anderson, whose company is building a 600,000-square-foot warehouse in Mira Loma, which borders Ontario.
Much of the building in the Inland Empire has occurred in or near Ontario for easy access to the Ontario International Airport, and much of the construction has been speculative, meaning the developer has no tenants lined up beforehand but believes demand is strong enough that tenants will be on hand when the building is completed.
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According to Doug Jorristma, a broker in Grubb & Ellis’ Ontario office, many of the warehouses built on speculation in the Inland Empire have been fully leased before construction was finished.
Besides these speculative buildings, the Inland Empire is home to a host of giant new distribution centers built by companies such as Toyota Motor Sales U.S.A. Inc., which operates a 760,000-square-foot warehouse in Ontario.
Completed in 1996, the facility is the largest Toyota parts center in the world, according to Mike Whitman, manager of the operation, who said it carries 225,000 separate parts and replaced five warehouses in Japan. The new center, which has 600 workers, has cut both the distribution costs and the time required for parts to reach customers, he said.
The Ontario warehouse ships parts to Toyota’s 11 U.S. parts centers, which in turn supply them to more than 1,400 Toyota, Lexus and Toyota Industrial Equipment dealers. The operation enables the company to practice just-in-time inventory control and reduce the number of parts that must be warehoused by dealers.
“If you stock too many parts locally, you may be stocking a lot of parts that customers aren’t going to need most of the time,” Whitman said. “We gain a lot of efficiencies with this system because it gives us the ability to move a part to the customer very quickly when it is needed.”
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Whitman said Toyota chose the Ontario site because the land was affordable, and the location has ready access to freeways, rail lines, Los Angeles ports and the Ontario airport.
The lack of land available in L.A. County for building modern warehouses is “worrisome,” says Kyser, who’s hoping that economic development officials can piece together some new L.A. County sites for industrial space. He said officials want to combine smaller properties by razing old facilities and building anew. But assembling such parcels could be a problem because the properties are held by so many different owners, Kyser said.
The situation doesn’t mean that L.A. County is entirely out of the running for new industrial space. Developers have managed to build 72 million square feet of new space in the county in the last 10 years, and at least one firm, Watson Land Co., still has sizable undeveloped acreage in the South Bay.
Watson, which owns 9.6 million square feet of industrial space in L.A. County, has 200 acres of vacant land suitable for industrial space and is now building 600,000 square feet of space in the South Bay communities of Carson and Rancho Dominguez, according to Kirk Johnson, a company vice president.
Dominguez Technology Center, the company’s largest active project is also being developed by Carson Cos. The two companies had owned the property in partnership, but they divided it roughly in half in recent months to develop separately.
Land and rents are cheaper in the Inland Empire, Johnson acknowledged, but South Bay sites are closer to the ports, reducing transportation costs. The shorter distance also permits more trips to and from the port each day, he added.
Another company building industrial space in the South Bay is Whittier-based Oltmans Construction Co., which broke ground Dec. 1 on a 1.2-million-square-foot speculative project called Harbor Gateway Commerce Center at a former Lockheed Martin site near the intersection of the San Diego and Harbor freeways.
At five times the size of the Inland Empire’s industrial market, L.A. County is not in danger of losing its status as a distribution center, Kyser said. But he pointed out that L.A. County has already missed out on considerable growth that it might have captured, and he expects the Inland Empire to keep growing as a distribution center, possibly some day equaling L.A. in size.
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Inching Back
Industrial space construction in Los Angeles County and the Inland Empire, in millions of square feet:
Los Angeles County
1997: 4.3 million
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Inland Empire
1997: 8 million
* As of Dec. 10
Source: Grubb & Ellis Co.
