INLAND EMPIRE REGIONAL INTELLIGENCE REPORT June 2016
EMPLOYMENT After a slow start to 2016, the Inland Empire s labor market returned to form, in recent job figures. Seasonally adjusted nonfarm employment in the region increased to 1,374,600 in March 2016, a 3.3% (43,500 jobs) jump over March 2015. The Inland Empire also outpaced the state as a whole (2.6%), as it has over the past three years. In March, the California Employment Development Department released their annual benchmark revision of Inland Empire employment figures for 2000 through 2015. These revisions show that there were 21,800 more nonfarm jobs in December 2015 than previously estimated, while year-over-year growth remained the same at 3.6%. This indicates the region made up a larger portion of the state s labor market then previously reported. Employment (000s, SA) 1,400 1,300 1,200 1,100 Jan-05 to Apr-16 14.5 12.5 10.5 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Nonfarm Employment Unemployment Rate Source: California Employment Development Department EMPLOYMENT In addition to gains in local payroll employment, household employment is also on the rise in the region. In March 2016, the unemployment rate in the Inland Empire was just 5.8%, a 1.1-percentage-point decline from March 2015. More importantly, this drop in the unemployment rate occurred while the region s labor force expanded at a rate of 0.8% over the same period. At the industry level, job growth remains broad-based, with the majority of Inland Empire sectors expanding their payrolls over the last year. The Transportation and Warehouse sector provided the most new jobs with 6,000 positions added. As mentioned in previous reports, Amazon is one of the key players driving growth in this industry, having opened multiple new fulfillment facilities 8.5 6.5 4.5 Unemployment (%, SA) in the Inland Empire in recent years. In addition, the Wholesale Trade sector saw considerable growth over the last year, increasing payrolls by 4,000 jobs (6.7%). Sector March 2016 Employment (000s) Year Over Year Change (%) Year Over Year Change (000s) Transport/Warehouse 96.2 7.8 6.9 NR/Construction 90.4 7.5 6.3 Wholesale Trade 64.4 6.7 4.0 Management 9.9 4.1 0.4 Education/Health 208.3 3.5 7.0 Government 238.6 3.0 6.9 Manufacturing 97.5 2.8 2.6 Other Services 44.7 2.3 1.0 Retail Trade 176.0 2.1 3.6 Leisure and Hospitality 152.2 1.7 2.6 Financial Activities 43.6 1.2 0.5 Admin Support 96.6 1.2 1.1 Prof Sci and Tech 39.4 0.8 0.3 Information 11.4 0.7 0.1 Utilities 5.4-0.2 0.0 Total Nonfarm 1,374.6 3.3 43.5 EMPLOYMENT BY INDUSTRY SECTORS Employment in the Construction sector is growing at a robust pace and leading all local sectors in terms of growth with a year-over-year increase of 7.8%. However, with Construction sector employment levels still onethird below their pre-recession peak, the region has yet to recover the Construction jobs that were lost during the Great Recession. Even so, these recent jobs gains reflect the increase in building permit activity among residential, industrial, and commercial properties over the last year something that should continue through the rest of 2016. New building projects in the area, and across Southern California, have been a boon to local construction firms. The Center for Economic Forecasting and Development remains optimistic about the course of the Inland Empire s labor markets. The region offers numerous opportunities for current residents, new residents, and businesses. Office, Retail, and Industrial rents make the area a draw for new and relocating businesses, and home prices remain affordable relative to coastal communities, making the Inland Empire an attractive place for new residents. 2
LOCAL SPENDING With local labor markets continuing to grow, consumer and business spending is also gaining traction. From the fourth quarter of 2014 to the fourth quarter of 2015, taxable sales in the Inland Empire increased 6.4% to $17.5 billion. At the county level, spending grew at a faster pace in San Bernardino County (8.9%) than in Riverside County (3.7%), although both counties outpaced the state overall (3.0%) over the period. year-over-year. This follows a strong year for the Leisure and Hospitality industry in the Inland Empire. Hotel data suggests that both tourism and business travel increased steadily over the course of 2015. According to data from PKF Consulting, the average daily rate for a hotel room in the region increased by 7.6% from 2014 to 2015, while occupancy rates increased 3.5 percentage points to reach 77.2% for the year. Taxable Sales (100 = Q1-05) Select Areas, Q1-05 to Q4-15 130 120 110 100 90 80 Q1-05 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15 While the majority of spending categories are growing, the significant drop in gasoline prices has been a hindrance to taxable sales growth in the region. In fact, the Fuel and Service Stations category was the only spending category to post a decline in taxable receipts over the past year, falling by 11.2% from the fourth quarter of 2014 to the fourth quarter of 2015. However, while low gasoline prices can hurt the Fuel and Service Stations category, the savings that consumers and businesses enjoy should help drive additional spending in other categories, offsetting a portion of the decline in taxable sales associated with low prices at the pump. Inland Empire Orange County Los Angeles San Diego Source: California State Board of Equalization TAXABLE SALES (INDEXED) According to taxable receipts from HdL Companies, most spending categories in the Inland Empire increased during 2015. Accompanying the solid year the Construction sector had in terms of employment was growth in the Building and Construction spending category, which increased at a faster pace than any other category, growing by 14.0% from the fourth quarter of 2014 to the fourth quarter of 2015. Business-to-business spending also increased significantly over the period, growing by 8.2% year-over-year. This additional spending on new capital goods and facility improvements highlights the optimism many businesses in the Inland Empire are feeling about their growth potential, as well as the overall health of the region s economy. Consumer spending in the Inland Empire is also increasing at a steady pace. The Autos and Transportation spending category led the way on the consumer side, growing by 7.9% from the fourth quarter of 2014 to the fourth quarter of 2015. With interest rates still near record lows, consumers are tapping into financing opportunities that may not be available after interest rates rise in coming years. The Restaurant and Hotel spending category grew by 5.9% 3
RESIDENTIAL REAL ESTATE Although the latest data indicate that home price appreciation has cooled compared to recent years, the residential real estate market in the Inland Empire advanced at a steady pace through the first quarter of 2016. Low inventories coupled with strong demand fueled much of the gain. And driving much of the demand is a clear affordability advantage: The average home in the Inland Empire costs about 45% less than the average home in Los Angeles County and roughly 57% less than the average home in Orange County. This has fueled an uptick in home sales in recent months. The median price for an existing single-family home in the Inland Empire increased to $294,550 in the first quarter of 2016, a 5.9% increase over the same quarter one year ago and slightly ahead of the state s 5.3% increase over the same period. Sales of existing homes also grew during that time, with 13,499 homes sold in the first quarter of 2016 on a seasonally adjusted basis, 6.9% more than in the first quarter of 2015. 25 Inland Empire, Q1-05 to Q1-16 400 The lull in inventories is also being driven by a significant reduction of distressed properties on the market over the past two years, with the number of defaults and foreclosures in the region falling to pre-recession levels. If foreclosed properties are removed from the equation and the focus is only on traditional sales, the sales picture becomes even brighter, highlighting the uptick in demand for traditional properties. Along with gains in the single-family market, the Inland Empire s rental market remains one of the hottest in the nation. The absorption of new units that came on line in recent quarters demonstrates strong demand for rental properties. As a result of this demand, vacancy rates remain low across the region. In the first quarter of 2016, only 2.8% of all rental units in the Inland Empire were vacant. While this is 0.1 percentage points higher than during the first quarter of 2015, the uptick was driven by new stock coming on line, with total stock growing by 1,211 units and occupied stock growing by 976 units over the period. At the same time, the Inland Empire s rate of rent growth was 3.6% year-over-year in the first quarter of 2016, falling behind Orange County (3.7%) and Los Angeles County (5.6%). Sales (000s, SA) 20 15 10 5 Q1-05 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15 350 300 250 200 150 Median Price ($ 000s, SA) Strong demand for single-family and multi-family real estate has fueled permitting activity in the region. In 2015, single-family permitting in the Inland Empire totaled 7,028 units, a 1.2% increase over 2014. Permitting for multi-family residences is still fluctuating, with activity down 26.4% during 2015 relative to 2014. This follows a very solid year for the Construction sector, however more building will be necessary to help alleviate the region s continued housing shortage. Home Sales Median Home Price Source: DataQuick EXISTING SINGLE-FAMILY HOME PRICES & SALES The Center for Forecasting s outlook for the residential real estate market in the Inland Empire remains positive. The region s relative affordability makes it an attractive place for new residents and the availability of land makes it a desirable place for future development. Home inventories in the region continue to fall short of demand, despite healthy permitting levels in recent years. This is partly a result of the unfriendly regulatory environment that developers face. Difficulties include NIMBYism, local zoning boards, and show-me-the-water compliance requirements that builders must overcome before breaking ground on new ventures. There was a 4.5-month supply of available homes on the market in the Inland Empire in March 2016, a slight drop from March 2015. 4
COMMERCIAL REAL ESTATE Like much of the rest of the Inland Empire s economy, the region s commercial real estate market is growing at a healthy pace. New stock continues to come on line, vacancy rates are declining, and rents remain affordable relative to neighboring coastal communities making the region attractive to new and relocating businesses. The Industrial market continues to drive much of the growth in commercial real estate in the region. With increasing demand for warehouse/distribution properties, the Logistics sector in particular has fueled much of the growth. From the first quarter of 2015 to the first quarter of 2016, over 344 million square feet of new warehouse/ distribution space came online in the Inland Empire. At the same time, vacancy rates at warehouse/distribution properties declined by 0.4 percentage points, as occupied stock increased by 9.4 million square feet (9.3%) over the period. Rent per Square Foot ($) 4.6 4.4 4.2 4.0 Inland Empire, Q1-10 to Q1-16 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15 Q1-16 Source: Reis, Inc. Asking Price WAREHOUSE & DISTRIBUTION RENTS & VACANCIES Vacancy Rate 16.0 14.0 12.0 10.0 Growth in the industrial market has not been limited to warehouse/distribution properties. Due in part to growth in the Manufacturing sector over the past year, the flex and R&D sub-market has also continued to grow in the Inland Empire. Vacancy rates dipped to 10.0% at flex/r&d properties in the first quarter of 2016, a 1.3 percentage point decline from one year ago. The uptick in demand has also driven rents up, with the cost of rent at flex/r&d properties increasing by 2.3% over the last year. Vacancy Rate (%) The Retail market in the Inland Empire has also grown over the last year. As wages have risen and employment opportunities increased, the resulting jump in disposable income has allowed residents and visitors to spend more on non-essential goods. As a result of the increased consumer demand, retail space has grown by 81,000 square feet in the region. Retail vacancy rates remained steady at 9.8% in the first quarter of 2016 relative to one year earlier. And despite new retail space coming on line, the cost of rent increased 2.5% from the first quarter of 2015 to the first quarter of 2016. The uptick in demand is not surprising given the relative affordability of retail space in the region coupled with population growth and a broadly improving economy. The office market in the Inland Empire also continued to improve, despite elevated vacancy rates. Office vacancy rates dipped to 22.3% in the first quarter of 2016, a 1.3-percentage-point decline, year-over-year. And while no new stock came on line over the past year, the uptick in occupied stock highlights gains in officeusing employment in the region. As a result of the rise in demand, the cost of rent at office properties increased at a rate of 1.0% from the first quarter of 2015 to the first quarter of 2016. The growth in demand for commercial real estate in the Inland Empire has also fueled permitting activity, although permitting levels are not as a robust as they were one year ago. Similar to the gains seen in rents and vacancy rates, the bulk of the new permitting activity is on the industrial side of the market. Of the $1.71 billion in non-residential permit values in the region in 2015, $528 million came from the industrial market. While industrial space accounted for the lion s share of the Inland Empire s non-residential permitting activity, other markets contributed as well. In 2015, $257 million in retail permits were issued and $61.7 million office permits were issued, a 25% decrease and 68.2% increase, respectively, relative to 2014. The Center for Forecasting s outlook for the Inland Empire s commercial real estate markets remains positive. Lower rents and greater available land relative to neighboring coastal communities make the region an attractive place for firms to locate. Another business draw is steady population growth and an economy in expansion mode, something that should continue in the coming years. 5
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