Inland Empire Retail Real Estate June 2020

Could August 15th Be the Next Critical Date?

 As retail is re-opening and we’re all getting used to the new reality one of the questions I hear most often is “What impact has the past 4 months had on the Inland Empire retail real estate market”. To answer that question, I’m going to share some updated facts and commentary relative to how I see the market moving forward.

Inland Empire Economic Facts


  • Unemployment as of the end of May 2020 was 14.9% per the State of CA Employment Development Department;
  • The hiring that came back the strongest from April 2020 to May 2020 was construction, professional and business services, and leisure/hospitality (still way down).
  • Government jobs continued to fall from April 2020 to May 2020. This was the worst performing employment sector.
  • From May 2019 to May 2020, Leisure and Hospitality (includes restaurants) lost 78,500 jobs and Retail was down 31,400 jobs. (#1 and #3 categories respectively)


  • New homes sales through the first 5 months of 2020 vs. 2019 were up 13% outpacing LA and Orange counties
  • Median price is $384,000 which is up 3.1% compared to last year
  • Existing home sales for May 2020 were down 41.2% from a year ago

Ontario International Airport Indicators

  • Air freight rose 24% in May 2020 compared to May 2019
  • Domestic passenger traffic was down 85% for the same period

Significant Inland Empire Retail Closures Announced to Date

  • Nordstrom – Montclair and Riverside
  • JC Penney – Chino and San Bernardino
  • 24 Hour Fitness – Montclair, Victorville, Murrieta and Temecula
  • Souplantation – all locations (I took this one the hardest. We loved going to “Soup Soup” when the kids were young).

Inland Empire Retail Real Estate Stats

  • June 2020 vacancy rate 7.9% compared to 6.9% on January 1, 2020.
  • 2nd quarter average asking lease rate down 5.5% compared to 1st quarter 2020
  • Gross leasing activity was down 56% with year to date leasing of 1,030,000 square-feet compared to over 2,330,000 square-feet the first half of 2019.
  • Negative net absorption of 1.74M square-feet since January 1, 2020
  • 2M square feet under construction although many of these projects are in the final stages and should be listed as completed in the near future.
  • 250K square feet started construction in 2nd quarter 2020 including a new Costco Business Center in Ontario.
  • Investment sales volume January through May 2020 was $372M compared to $547M in 2019 – a 47% decrease.
  • Average cap rate the first 5 months of 2019 vs. 2020 remained the same at 6.4%.

So what does all this data mean?  In my opinion, the Inland Empire Retail Market has averted what could have been a complete disaster. I think it has held up due to a combination of factors, including:

  • The underlying strength and health of the Inland Empire economy pre-crisis compared to previous
  • Big fat unemployment benefits which effectively prevented the large number of unemployed from having to spend like they are unemployed.
  • Stimulus checks and tax refunds that kept spending going.
  • The Payroll Protection Program (PPP) and other business support programs that caused many business owners not to panic and retain employees for just long enough to prevent further layoffs.
  • Massive creativity on the part of business operators who figured out how to keep making money or at least breaking even based upon potentially lower sales, but at lower costs.
  • Landlords who generally were not over leveraged or had cooperation from their lender and therefore had flexibility to work with those tenants that were either closed or highly challenged during these past few months.
  • The understanding that the most pain is concentrated in a small, but important, group of operators including fitness clubs, beauty establishments, movie theaters, specific types of restaurants (i.e. buffet, fine dining), and other entertainment oriented uses.
  • The Inland Empire’s lack of dependence upon tourism. Although there are many tourist-related activities it isn’t a major part of the economy.
  • The Inland Empire has benefitted from being the West Coast’s distribution hub which has thrived with the growth of ecommerce.

Does this mean the Inland Empire Retail Market is out of the woods? Maybe. It is possible that the massive government stimulus package may have been just the right amount of medicine to get the economy back to a level that will prevent substantial damage to the retail real estate market.

However, it is also possible that:

  • The extraordinary unemployment benefits run out before many get back to being employed;
  • That those businesses that are hanging on right now may not be able to recover;
  • That retailers, especially national retailers that occupy large amounts of square footage, keep re-evaluating locations as leases come due and elect not to renew leases as they expire;
  • The virus becomes more widespread before the medical community develops adequate treatments and/or a vaccine, but this time the Federal Government balks at more stimulus;
  • Lenders reach their maximum cooperation capability and force distress in the marketplace.

What direction does It seem the wind is blowing? I see August 15th as a critical date.  I believe that is a point in time that will create more clarity. By then:

  • We should have a better read on which businesses have “come back” and can maintain being current on their rent.
  • We will know what unemployment insurance payments look like.
  • We will have a better understanding regarding what schools will be doing since we have all now learned that our education institutions function as not only places of education but also places that occupy kids as parents go off to work.
  • We will have that much more information regarding the medical community’s ability to treat the virus and whether a vaccine is probable in the near future.
  • We should have greater clarity from the commercial lending community which will substantially impact the ability to trade properties as the investment sales market and the capital markets are currently highly conflicted over retail.

Overall, I am optimistic. As I drive around, I’m seeing substantial amounts of economic activity. In fact, many times, I’m amazed to see the amount of traffic at certain retail centers. Clearly, I wish more people would be wearing masks as I think there is nothing to lose by wearing a mask and hopefully this will help keep people safe and keep our economic engine running.

That being said, I have massive sympathy and empathy for those very hard working entrepreneurs who just got caught in the wrong business at the wrong time at absolutely no fault of their own. I recognize that some of their businesses are just not going to make it. I am hopeful that as a real estate community we will recognize their hardship and treat them with respect and dignity.

I hope this blog offered you some knowledge that will help your decision making process. At Progressive Real Estate Partners we make it a priority to be well informed so we can help our clients make the best decisions based upon the current market circumstances.

If I can help put our team to work for you, please reach out to me on my cell at 909-816-4884 or via email at As always, I welcome your feedback regarding this blog.

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