A well-leased Temecula industrial park trades on the fundamentals big-box lost

A three-building, multi-tenant industrial park at 40880, 40935 and 40945 County Center Drive in Temecula changed hands this month for $13.5 million, with CBRE representing the seller, South La Brea LLC. The buyer was Jewel Capital LLC. The park is 97.4% leased and has held occupancy above 95% for more than seven years.

CBRE's Matt Pourcho, the executive vice president on the deal, said the asset drew buyers on below-market rents, a flexible parcel layout, and what he called Temecula's low vacancy and long-term growth fundamentals. In plain terms: a small-bay, multi-tenant building that stays full and has room to push rents.

That is the opposite of the story driving the region's headline industrial numbers. IE Core warehouse vacancy hit 7.8% in the first quarter, up 70 basis points from the prior quarter and the steepest of four straight quarters of rising or flat vacancy, on CBRE's read. The cause is specific: large move-outs in the 500,000-square-foot-and-up range. The glut is a big-box glut.

Small multi-tenant industrial — the 5,000-to-30,000-square-foot units a contractor, distributor, or light manufacturer actually leases — runs on different supply. Almost none of it gets built; the development pipeline that did exist was aimed at the big box, and that pipeline has collapsed to 3.3 million square feet across the IE Core, down 65% in a year. Tight supply of small bays plus steady small-tenant demand is what keeps a park 95% full for seven years through a market cycle.

For investors and operators, the takeaway is that "IE industrial" is not one asset class. The vacancy and rent softness that defines the big box does not describe the well-leased multi-tenant park, and a deal that clears on below-market rents in southwest Riverside is a different market than the one giving tenants leverage in Fontana and Ontario.