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Inland Empire Apartment Construction Update

CoStar Market Insights: We Have Lift Off
July 3, 2018
Image courtesy of G.H. Palmer Associates.

Inland Empire is starting to heat up, and that’s not a referencing the area’s notorious summer temperatures.

Apartment development is finally starting to break ground at levels we have not seen this cycle. There are more than 4,600 units under construction in the Inland Empire -- a figure last reached during the second quarter of 2006.

For comparison, there were less than 2,500 units under construction at any point between the third quarter of 2008 and the first quarter of 2017, and 3,400 units were under construction at this point last year. Yet despite the vast amount of open land, today’s multifamily development is highly concentrated in the metro area’s most densely populated areas, including Ontario/Rancho Cucamonga, Chino Chills and Riverside.

Development in the Greater Ontario/Rancho Cucamonga submarket stands apart because two projects under construction will be the largest to deliver this cycle. The Paseos at Ontario and the redevelopment of the Empire Lakes Golf Course in Rancho Cucamonga together will contain 1,800 units and will be located less than four miles apart. They are separated by more than 2,800 existing multifamily units, most of which are 4-Star.

While Ontario and Rancho Cucamonga are job hubs with numerous financial, professional and business firms, these new developments will also benefit from their proximity to Interstate 10, one of the primary freeways connecting Inland Empire residents to L.A. County. Furthermore, Metrolink rail stops in both Ontario and Rancho Cucamonga provide convenient transportation for commuters to LA’s San Gabriel Valley and Downtown LA.

Proximity to freeways and access to public transit are amenities that other area developers have embraced as well.

For example, Ratkovich Properties will soon deliver the 91-unit Imperial Hardware Lofts and The Wolff Company recently broke ground on the 212-unit Mission Lofts. Both projects are located in downtown Riverside and are less than one mile away from State Route 91, which leads to Orange County, as well as Metrolink and Amtrak rail stops.

Comparing today’s construction levels to those last seen during the financial crisis and housing crash, which devastated the Inland Empire, one might be concerned about oversupply at this point in the cycle. Yet economic and demographic conditions might now be more favorable.

Inland Empire’s unemployment rate recently reached 3.7 percent in May -- its lowest rate in the 28 years this number has been tracked. The educational attainment of the Inland Empire’s workforce is another important factor, in particular as it correlates with a steadier employment status during economic downturns.

The market’s population aged 25 years and over with a bachelor’s degree grew by 37 percent from 2006 to 2016 -- a result from both residents obtaining degrees and the metro area attracting educated residents from LA, Orange County and out of state.

Also, recent job growth has been bolstered by the growing logistics industry, which is experiencing a surge in demand due to e-commerce activity. This is an important aspect for the area’s economy because e-commerce is widely expected to continue to expand, generating additional employment opportunities and economic growth to the region.

Rent affordability, however, offers some reason for caution.

Measured by the ratio of apartment asking rents to median household income, this ratio suggests that in the second quarter of 2018, 28 percent of the average household’s income went towards the average apartment available for rent, compared 24 percent halfway through 2006.

Reduced levels of affordability will make it tougher for many households to fit the premium costs of a new rental into their budget.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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