Future Cities
2023 North America Industrial Big Box Review & Outlook: Central Valley, CA
April 4, 2023 5 Minute Read
The Central Valley industrial market hit a high-water mark in 2022 for big-box net absorption, led by 3PLs, e-commerce and electronic vehicle sectors. Institutional-quality supply remains balanced across all size niches and is in line with steady occupier demand. The confluence of location, transportation modalities and labor accessibility make California’s Central Valley the premier corridor to serve Northern California and the western United States.
Demographics
Central Valley’s proximity to the affluent Bay Area gives it convenient access to more than 6.9 million people within a 50-mile radius. Within 250 miles, the market reaches 18 million people, with 25% aged 18-34.
Figure 1: Central Valley Population Analysis
Source: CBRE Location Intelligence, Q4 2022.
The local warehouse labor force of 30,005 is expected to grow by a 15.5% by 2032, according to CBRE Labor Analytics. The average wage for a non-supervisory warehouse worker is $19.88 per hour, 17.6% above the national average.
Figure 2: Central Valley Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics, Q4 2022.
*Median wage (1 year experience); non-supervisory warehouse material handlers.
Location Incentives
Over the past five years, there have been 72 publicly known economic incentives deals totaling more than $105 million for an average of $13,296 per new job in metro Central Valley, according to Wavteq.
CBRE’s Location Incentives Group reports that top incentive programs in Central Valley include the California Competes Tax Credit, a discretionary income tax credit for businesses that locate or expand in California. The program has $180 million in tax credits available through 2023 for allocation to businesses that make capital investments, create new jobs and offer strategic importance to the region. The credits are non-refundable and companies can only apply during designated application periods three times per year.
Figure 3: Central Valley Top Incentive Programs
Source: CBRE Location Incentives Group, Q4 2022.
Note: The extent, if any, of state and local incentive offerings depends on location and scope of the operation.
Logistics Driver
The Central Valley is one of the most rail-friendly logistics regions in California, served by two major lines: BNSF and Union Pacific. Fresno Yosemite International Airport provides daily cargo services by FedEx and UPS. The region’s top logistics advantage may be the Port of Stockton, which is served by four major freeways, two transcontinental railroads, an international waterway and a regional airport. The port boasts first-class warehouse storage and handling facilities for both dry and liquid bulk materials, facilities and equipment to handle break-bulk and containerized cargo by land or sea.
The region’s top logistics advantage may be the Port of Stockton, which is served by four major freeways, two transcontinental railroads, an international waterway and a regional airport.
Capital Markets
The Central Valley is one of the nation’s top industrial markets, attracting high-quality tenants and institutional investors. Market dynamics, historically low vacancy and strategic proximity to major distribution and logistics channels brought in top notable buyers in 2022, such as Prologis, Blackstone, Dalfen, Intercontinental and Kennedy Wilson. As one of California's fastest growth industrial corridors, Class A cap rates are expected to stabilize in the 4.75- 5.25% range (at market rents) in 2023.
Supply & Demand
Central Valley remained one of North America’s top big-box growth markets due to its available land and central location in California. Transaction volume totaled 10.6 million sq. ft. in 2022, with demand evenly distributed throughout different size ranges. Net absorption increased to 10 million sq. ft., North America’s third-highest growth rate (net absorption/existing inventory) of 9.4%. Demand was led by the food and beverage sector and 3PLs, each with over 30% market share. First-year taking rents increased 13.6% to $7.03 per sq. ft., which remains the lowest taking rent of any California market.
Despite nearly 9 million sq. ft. of construction completions, the overall vacancy rate declined 10 bps to 3.3%. Space under construction has declined in 2022 to 7.6 million sq. ft., with 25.8% pre-leased. The projected completions decline and increased demand from occupiers unable to find space in the Inland Empire will keep vacancy rates low and could accelerate rent growth to over 20% this year.
Figure 4: Share of 2022 Leasing by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 5: Lease Transaction Volume by Size Range
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
Figure 6: 2022 Construction Completions vs. Overall Net Absorption by Size Range
Source: CBRE Research, 2022.
Figure 7: Direct Vacancy Rate by Size Range
Source: CBRE Research, 2022.
Figure 8: Under Construction & Percentage Preleased
Source: CBRE Research, 2022.
Figure 9: First Year Taking Rents (psf/yr)
Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Source: CBRE Research, 2022.
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Contacts
John Morris
President, Americas Industrial & Logistics, Advisory Services
