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2020-12-02 City Council Item No. 4.1 General Plan Land Use Visioning Workshop Industrial Market Demand Study/ EDC Areas Presentation Special MEETING - Additional Meeting MaterialsGeneral Plan Land Use Visioning Workshop Industrial Market Demand Study/EDC Areas December 2, 2020 •Background •Meyers Group LLC –Industrial Market Demand Study •Overview of EDC & EDC Subareas •Discussion/Vision Joint CC-PC Workshop •December 2019 –General Plan overview and Visioning •February 2020 –Retail/Office Market Demand Study presented by Meyers Group. High level industrial market data presented by JLL •Menifee Industrial Market Study prepared by Meyers Group and updated in light of COVID-19 and regional analysis Background Background –Retail Study Overview Background –Retail Study Overview Background –Office Study Overview *COVID-19 IMPACTS TO THESE FINDINGS WITH REMOTE WORK. IMPACTS YET TO BE DETERMINED Meyers Industrial Study Industrial Market Opportunity Analysis│ City of Menifee │ 8 Based on our research,including site visits,industrial market trends,supply-demand factors and conversations with localindustrialbrokers,Menifee offers a strong demand opportunity for warehouse/distribution and manufacturing uses,as wellasflex/showroom space. •Factors that drive this opportunity include:household and employment growth,tight industrial market conditions,lack ofsupply,and proven success in terms of lease-up activity in new development locally. •Industrial market conditions are strong in the Inland Empire in general and are very favorable in the South Riverside submarket. •The Moreno Valley/Perris submarket located directly north of Menifee has been a fast growing industrial hub,and the factthatPerrisisrestrictingadditionalwarehouse/distribution developments (and Menifee is the next closest city to Perris)indicates there is an opportunity to capture additional logistics demand in Menifee going forward. •There is currently +/-540,000 square feet of unmet demand for industrial development in Menifee,and it grows by anaverageof580,000 square feet annually. •EDC Northern Gateway’s proximity to Perris/Moreno Valley represents an opportunity to capture Logistics demand,while the Southern Gateway’s proximity to higher priced markets (Temecula/Murrieta &N.San Diego County). CONCLUSIONS Meyers Research Conclusions Industrial Market Opportunity Analysis│ City of Menifee │ 9 EMPLOYMENT CONCENTRAIONS Location Overview Menifee is proximate to major shipping ports at Los Angeles,Long Beach and San Diego.The distance from Menifee to these three ports is less than 100 miles and is approximately a 90 minute drive (excluding traffic).This represents a reasonable commute for warehouse/distribution users to locate in Menifee,as the next bestalternativetothematureandclusteringindustrialsubmarketsofMorenoValleyandPerristothenorth. Source: ESRI, Google Maps Port of Long Beach:1.4 million containers (2019)81 miles, 1.35 hours to Menifee Port of Los Angeles: 2.1 million containers (2019)82 miles, 1.35 hours to Menifee Port of San Diego: 823,000 containers (2019)76 miles, 1.11 hours to Menifee Industrial Market Opportunity Analysis│ City of Menifee │ 10 Paste Paste Paste Paste Source: ESRI 31.0% 31.5% 33.0% 30.1% 28.5% 29.0% 29.5% 30.0% 30.5% 31.0% 31.5% 32.0% 32.5% 33.0% 33.5% Inland Empire, CA MSA Riverside County 7-Mile Radius City of Menifee Educational Attainment -Bachelor's or Higher (2020) 55.3%55.0%59.1%58.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Inland Empire, CA MSA Riverside County 7-Mile Radius City of Menifee Occupation (2020) White Collar Services Blue Collar 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Ag /Mining Constr.Manu.WholesaleTrade Retail Trade Trans.Utilities Info.FIRE Services Public Employment by Industry (2020) 7-Mile Radius City of Menifee Approximately 30%of Menifee residents have a Bachelor’s degree,and is predominately 58%while collar and 23%blue collar jobs as of 2019.However,a total of 10,485 residents are employed in industrial-oriented jobs that reside in Menifee (orange border),yet there are only 1,897 industrial employees atbusinessesbasedinMenifee(see the following page)—thus a vast majority of industrial employees (82%)are employed in industrial jobs outside of Menifee.ThisrepresentsanopportunitytocapturethisworkforceinadditionalindustrialdevelopmentswithinMenifee. EDUCATIONAL ATTAINMENT AND OCCUPATION Demographic Overview City of Menifee Residents -Employees in Industrial Jobs: 10,485 Industrial Market Opportunity Analysis│ City of Menifee │ 11 RESIDENT COMMUTE PATTERNS TO EMPLOYMENT Location Overview The majority of Menifee residents commute to other parts of Southern California.Over 90%of Menifee residents commute to areas outside of the Menifee citylimits,most notably to Temecula (9.4%),San Diego County (7.2%),and Murrieta (6.3%).These commuting patterns are important to consider for the industrial demandopportunityinMenifee,since the majority of the workforce is spending the majority of their time away from the city. Source: On The Map Census, SCAG Note:Orange County accounts for approximately2,800 commuters that live in Menifee,or 11%of totalcommuters. Industrial Market Opportunity Analysis│ City of Menifee │ 12 WAREHOUSE & DISTRIBUTION FACILITIES NORTH OF MENIFEE Location Overview Perris and Moreno Valley are a major logistics hub with over50warehouseanddistributionfacilitiesforseveralFortune500companies.These companies are clustered along I-215freewayexitroads,most notably Ramona Expressway and AlessandroRoad.Some of the largest retailers in the United States are located here—Amazon,Lowe’s,Home Depot,Wayfair,UPS and Ross havemultiplelocationshereandtheareaishometoWalgreens,P&G,General Mills,Ralphs and Pepsi among others.Menifee’s EthanacRoadfreewayexitislocatedeightmilessouthofthelogisticshubatRamonaExpressway—the fact that Perris is restricting additionalwarehouse/distribution developments (and Menifee is the nextclosestcitytoPerris)indicates there is an opportunity to captureadditionallogisticsandfulfillmentdemandinMenifeegoingforward. Source: JLL 5 miles to Menifee Northern Gateway 8 miles to Menifee Note:clustering of several distribution centerscanattractfulfillmentcenters(Amazon),creating more jobs (and higher paying jobs). Industrial Market Opportunity Analysis│ City of Menifee │ 13Source: CoStar The Inland Empire is defined as Riverside and San Bernardino counties combined,and is comprised of ten industrial submarkets.Menifee is located intheSouthRiversidesubmarket,which includes other cities such as Temecula,Murrieta,Perris and Hemet among others. DEFINITION OF INLAND EMPIRE INDUSTRIAL SUBMARKETS Industrial Market Trends Menifee Industrial Market Opportunity Analysis│ City of Menifee │ 14 INLAND EMPIRE INDUSTRIAL VACANCY AND LEASE RATES BY MARKET Industrial Market Trends Airport Area, 33.2% Beaumont/ Hemet, 1.7% Chino/ Chino Hills, 8.1% Coachella Valley, 2.3% Corona/ Eastvale, 5.2% Mojave River Valley, 3.3% Moreno Valley/ Perris, 12.0%Redlands/ Loma Linda, 4.5% Riverside, 10.9% Riverside Outlying, 0.1% San Bernardino, 13.8% San Bernardino Outlying, 0.0% South Riverside, 3.4% Twentynine Palms, 0.1% Upland/ Montclair, 1.5% Source: Costar Last 12 Months Last 12 Months Under Avg. Asking Rent Net Absorption (SF)Deliveries (SF) Construction (SF)($/ SF/ Mo.) Airport Area 220,771,000 7,359,349 3.3%3,629,830 4,112,000 8,556,000 $0.79 Beaumont/ Hemet 11,378,000 293,779 2.6%2,462,826 2,575,000 0 $0.71 Chino/ Chino Hills 53,779,000 698,918 1.3%651,351 781,000 783,000 $0.80 Coachella Valley 15,620,000 522,871 3.3%89,562 44,000 0 $1.15 Corona/ Eastvale 34,925,000 1,836,177 5.3%687,424 951,000 626,000 $0.87 Mojave River Valley 22,153,000 932,464 4.2%459,824 168,000 24,000 $0.74 Moreno Valley/ Perris 81,955,000 3,969,842 4.8%7,152,405 5,169,000 3,670,000 $0.62 Redlands/ Loma Linda 29,434,000 1,622,207 5.5%(1,411,252)155,000 155,000 $0.63 Riverside 72,574,000 2,666,034 3.7%(857,906)437,000 1,439,000 $0.76 Riverside Outlying 377,000 24,220 6.4%16,813 0 0 $0.80 San Bernardino 92,479,000 4,765,156 5.2%6,486,483 5,757,000 5,054,000 $0.66 San Bernardino Outlying 226,000 0 0.0%15,991 0 0 $0.94 South Riverside 22,309,000 806,189 3.6%86,609 124,000 138,000 $1.01 Twentynine Palms 388,000 20,255 5.2%(12,206)0 0 $1.07 Upland/ Montclair 9,822,000 430,556 4.4%248,554 365,000 149,000 $0.99 TOTAL:668,190,000 25,948,017 3.9%19,706,308 20,638,000 20,594,000 $0.76 Submarket Total SF Vacant SF Vacancy RateTheSouthRiversidesubmarketcomprisesasmallsegment(3.4%)of the Inland Empire MSAindustrialmarketoverall,while theMorenoValley/Perris submarketcomprises12.27%of the market. South Riverside has higher averageleaserates($1.01 per square foot)thantheoverallmarketandlowervacancies(3.6%),indicating this is a relativelystrongindustrialsubmarketwithpent-up demand for more space.Netabsorption,deliveries and space underconstructionareallpositiveinSouthRiverside,albeit at relatively low levels (less than 140,000 square feet in each). Additionally,some industrial tenants maylocateinindustrialmarketssuchasSanBernardinoandMorenoValley/Perris, where larger industrial buildings arelocated,as clustering is a valuedopportunity.For perspective,the MorenoValley/Perris submarket is nearly fourtimeslargerthanSouthRiversidein terms of industrial inventory,with verystrongdevelopmentactivityoflate—over7.1 million square feet of positive netabsorptionand5.1 million square feet ofdeliveriesoverthepast12months.Menifee is located directly south ofPerris,and represents an opportunitytocaptureaportionofthisdemand. Industrial Market Opportunity Analysis│ City of Menifee │ 15 The San Diego County industrial market represents higher lease rates than South Riverside,and development activity is evident in north San DiegoCountysubmarkets.North San Diego County (Carlsbad,Escondido,Oceanside,San Marcos,Vista)is a lower priced industrial market versus other industrial markets in theCounty,but still represents higher lease rates than newly constructed industrial buildings in Menifee.This data indicates that Menifee offers a competitive advantage in terms ofleaseratesversusSanDiegoCounty. SAN DIEGO INDUSTRIAL VACANCY AND LEASE RATES BY MARKET Industrial Market Trends North SD County, 29.4% Central SD County, 30.5% I-15 Corridor, 10.9% South SD County, 17.3% East SD County, 11.0% Outlying East SD County, 0.9% Source: Costar Last 12 Months Last 12 Months Under Avg. Asking Rent Net Absorption (SF)Deliveries (SF) Construction (SF)($/ SF/ Mo.) North SD County 56,608,561 4,472,076 7.9%(53,237)68,774 0 $0.99 Central SD County 58,688,537 3,814,755 6.5%(471,804)98,000 223,826 $1.27 I-15 Corridor 21,029,267 588,819 2.8%983,632 675,468 0 $1.34 South SD County 33,238,628 2,027,556 6.1%(77,033)237,631 4,765,157 $0.85 East SD County 21,267,214 659,284 3.1%(12,986)7,413 110,119 $1.00 Outlying East SD County 1,783,781 21,405 1.2%(8,514)0 0 $1.30 TOTAL:192,615,988 11,583,896 6.0%360,058 1,087,286 5,099,102 $1.09 Submarket Total SF Vacant SF Vacancy Rate Industrial Market Opportunity Analysis│ City of Menifee │ 16 MORENO VALLEY/ PERRIS INDUSTRIAL MARKET SPACE TYPE DISTRIBUTION Industrial Market Trends Moreno Valley/Perris is dominated by Logistics space (92%),and Logistics space also dominates the market in terms of positive net absorption,deliveries and space under construction.The submarket also represents significantly lower lease rates than the South Riverside submarket (see the following page). Manufacturing8% Logistics92% Flex0.4% Total Inventory Source: Costar 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 Manufacturing Logistics Flex Vacancy RateAvg. Asking Lease Rate (Mo. $/SF) Source: Costar ($/ SF/ Mo.) Vacancy Rate Vacancy Absorption (SF)Deliveries (SF)Under Asking Rent Type Total SF Vacant SF Rate Last 12 Mo.Last 12 Mo.Construction (SF)($/ SF/ Mo.) Manufacturing 6,338,592 164,160 2.6%498,821 428,511 91,987 $0.75 Logistics 75,298,071 3,789,943 5.0%9,332,069 7,693,560 3,578,034 $0.60 Flex 318,589 15,739 4.9%(19,013)(3,400)0 $1.16 TOTAL:81,955,252 3,969,842 4.8%9,811,877 8,118,671 3,670,021 $0.62 Industrial Market Opportunity Analysis│ City of Menifee │ 17 SOUTH RIVERSIDE INDUSTRIAL MARKET SPACE TYPE DISTRIBUTION Industrial Market Trends South Riverside is comprised of Logistics space (56%)followed by Manufacturing space (36%).Lease rates are also relatively high in the submarket,indicatingbuildingownersareholdingfirmonleaseratesforthelimitedamountofavailablespace—for perspective,there are seven submarkets in the Inland Empire with over 1 millionsquarefeetofavailablespaceineach,and all have significantly lower average lease rates in the $0.60 to $0.70 per square foot range.Development activity and leasing activity in South Riverside is predominantly for Logistics space,which indicates that Manufacturing and Flex development will likely be smaller scale and longer term than Logisticsbuildings. Vacancy Absorption (SF)Deliveries (SF)Under Asking Rent Type Total SF Vacant SF Rate Last 12 Mo.Last 12 Mo.Construction (SF)($/ SF/ Mo.) Manufacturing 7,956,364 235,305 3.0%(134,468)11,952 0 $1.06 Logistics 12,586,342 430,421 3.4%276,107 214,813 137,591 $0.96 Flex 1,766,101 140,463 8.0%(78,565)0 0 $1.15 TOTAL:22,308,807 806,189 3.6%63,074 226,765 137,591 $1.01 Manufacturing36% Logistics56% Flex8% Total Inventory Source: Costar 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% $0.85 $0.90 $0.95 $1.00 $1.05 $1.10 $1.15 $1.20 Manufacturing Logistics Flex Vacancy RateAvg. Asking Lease Rate (Mo. $/SF) Source: Costar ($/ SF/ Mo.) Vacancy Rate Industrial Market Opportunity Analysis│ City of Menifee │ 18 Our demand model supports the amount of industrial space planned in Menifee currently,and demand will continue over the next decade.Our industrial demand analysis is based on job growth projections by industry for the Riverside County industrial market,then refined by applying low and high capture (%)estimates for theappropriatesubmarkets,and ultimately for the City of Menifee.The tables below represent realistic demand (average of low and high capture %)for industrial space annuallyoverthenexttenyears.The industrial space demanded in our model in Menifee is 5.81 million square feet over the next ten years,or 581,600 square feet annually.This annual industrial space demanded represents a lost opportunity for each year that space is not delivered to meet this demand—industrial tenants may locate in other citieswherespaceisavailable. INDUSTRIAL DEMAND SUMMARY Key Findings Year Low High Low High 2020 40.0%50.0%10.0%20.0% 2021 40.0%50.0%10.0%20.0% 2022 40.0%50.0%10.0%20.0% 2023 40.0%50.0%10.0%20.0% 2024 40.0%50.0%10.0%20.0% 2025 40.0%50.0%10.0%20.0% 2026 40.0%50.0%10.0%20.0% 2027 40.0%50.0%10.0%20.0% 2028 40.0%50.0%10.0%20.0% 2029 40.0%50.0%10.0%20.0% MEYERS Realistic Buildout for the CITY OF MENIFEE - Industrial Size and Demand (SF) Capture Rates Estimated Annual Capture: SOUTH RIVERSIDE & MORENO VALLEY/ PERRIS (%) Estimated Annual Capture: CITY OF MENIFEE (%) Year 2020 7,760,075 3,492,034 543,205 2021 8,826,740 3,972,033 617,872 2022 8,098,290 3,644,230 566,880 2023 8,218,055 3,698,125 575,264 2024 8,232,760 3,704,742 576,293 2025 8,202,245 3,691,010 574,157 2026 8,309,515 3,739,282 581,666 2027 8,360,260 3,762,117 585,218 2028 8,488,015 3,819,607 594,161 2029 8,592,565 3,866,654 601,480 AVERAGE:8,308,852 3,738,983 581,620 TOTAL:83,088,520 37,389,834 5,816,196 Source: Meyers Research, Woods & Poole, CoStar Total Industrial Demand (SF) MENIFEE MEYERS Realistic Buildout for the MENIFEE (SUBJECT) - Industrial Size and Demand (SF) Riverside County Industrial Market Demand (SF) South Riverside & Moreno Valley/ Perris Demand (SF) Industrial Market Opportunity Analysis│ City of Menifee │ 19 KEY CONCLUSIONS (CONTINUED) Meyers Research Conclusions We estimate approximately 70%of industrial space demanded for warehouse/distribution,25%for manufacturing and 5%for flex/showroom space.Our interviews with local industrial brokers indicated that while there is demand for industrial spaces in all three types,the largest segment of demand is in thewarehouse/distribution space,followed by manufacturing space.In reality,these uses are actually one-in-the-same in many instances since firms often have somemanufacturing(assembly)production was well as product storage (warehousing)within the same building.Additionally,this is average annual demand,and it is likely that there will be far more demand in some years,followed by little activity in other years.The table below translates our estimated space demanded into these three industrialbuildingtypes: Logistics (400,000 - 1M SF Bldgs) Manufacturing (50,000 - 400,000 SF Bldgs) Flex/ Showroom (5,000 - 50,000 SF Bldgs) Year 70% Capture 25% Capture 5% Capture TOTAL 2020 380,244 135,801 27,160 543,205 2021 432,510 154,468 30,894 617,872 2022 396,816 141,720 28,344 566,880 2023 402,685 143,816 28,763 575,264 2024 403,405 144,073 28,815 576,293 2025 401,910 143,539 28,708 574,157 2026 407,166 145,417 29,083 581,666 2027 409,653 146,305 29,261 585,218 2028 415,913 148,540 29,708 594,161 2029 421,036 150,370 30,074 601,480 AVERAGE:407,134 145,405 29,081 581,620 TOTAL:4,071,337 1,454,049 290,810 5,816,196 Source: Meyers Research, Woods & Poole, CoStar Industrial Market Opportunity Analysis│ City of Menifee │ 20 Based on our research,including site visits,industrial market trends,supply-demand factors and conversations with localindustrialbrokers,Menifee offers a strong demand opportunity for warehouse/distribution and manufacturing uses,as wellasflex/showroom space. •Factors that drive this opportunity include:household and employment growth,tight industrial market conditions,lack ofsupply,and proven success in terms of lease-up activity in new development locally. •Industrial market conditions are strong in the Inland Empire in general and are very favorable in the South Riverside submarket. •The Moreno Valley/Perris submarket located directly north of Menifee has been a fast growing industrial hub,and the factthatPerrisisrestrictingadditionalwarehouse/distribution developments (and Menifee is the next closest city to Perris)indicates there is an opportunity to capture additional logistics demand in Menifee going forward. •There is currently +/-540,000 square feet of unmet demand for industrial development in Menifee,and it grows by anaverageof580,000 square feet annually. •EDC Northern Gateway’s proximity to Perris/Moreno Valley represents an opportunity to capture Logistics demand,while the Southern Gateway’s proximity to higher priced markets (Temecula/Murrieta &N.San Diego County)lends itself to Manufacturing and Flex/R&D uses. CONCLUSIONS Meyers Research Conclusions Summary Market Studies Summary Questions on Market Studies? Economic Development Corridors The intent of the designation is to identify areas where a mixture of residential, commercial, office, industrial, entertainment, educational, and/or recreational uses or other uses is planned. Both horizontal and vertical mixed uses are permitted. In general, areas designated EDC are envisioned to develop primarily as nonresidential uses, with residential uses playing a supporting role. Residential uses shall be integrated vertically and horizontally with other uses and shall be allowed as stand-alone projects. Overall, residential uses shall not exceed 15% of the total EDC acreage nor be allowed directly adjacent to the freeway. EDC •Goal: LU-2:Thriving Economic Development Corridors that accommodate a mix of nonresidential and residential uses that generate activity and economic vitality in the city. •Policies •LU-2.1:Promote infill development that complements existing neighborhoods and surrounding areas. Infill development and future growth in Menifee is strongly encouraged to locate within EDC areas to preserve the rural character of rural, estate, and small estate residential uses. •LU-2.2:Encourage vertical and horizontal integration of uses where feasible on properties in EDCs. •LU-2.3:Identify opportunities to link the city's educational and medical facilities, such as Mount San Jacinto College and the Regional Medical Center, to complementary uses in EDCs. •LU-2.4:Actively support development of cultural, education, and entertainment facilities in EDCs and utilize these venues to generate a unique identity for the city in Southwest Riverside County. EDC –5 Subareas Envisioned as an employment center focused on providing opportunity for business park development and more traditional industrial (less office) than EDC Southern Gateway. Emphasis should be on job creation and creating connections to regional transportation corridors including I-215 and the railroad. Preferred Mix of Land Use •Residential 5% •Industrial 95% EDC-Northern Gateway (594 acres) Envisioned as a mixed-use district along McCall Boulevard. Introduce new single family attached/multifamily residential adjacent to Medical Center. Provide additional retail and office that would be compatible with the Regional Medical Center and would provide health-related services in close proximity to Sun City Residents. Preferred Mix of Land Use •Residential 20% •Commercial Retail 60% •Commercial Office 20% EDC-McCall Blvd (257 acres) Envisioned as a dynamic east-west corridor by adding neighborhood-oriented commercial uses to support residential development and grow the City’s tax base. Focus on opportunities to add new single-family attached and detached residences. Some limited business park or offices uses may be appropriate if developed adjacent to existing similar uses. Preferred Mix of Land Use •Residential 30% •Commercial Retail 60% •Commercial Office 5% •Business Park 5% EDC-Newport Road (156 acres) The picture can't be displayed. Envisioned as a balanced mix of residential, commercial retail, commercial office, and business park uses. Development that supports and complements existing specific plans and the City’s future Town Center is especially encouraged. Special attention should be paid to Increased walkability and connections to MSJC and future transit nodes. A range of single-family attached and detached housing is appropriate, so long as it supports an active city center and helps to create a sense of place. Avoid placement of residential units directly adjacent to the freeway. Preferred Mix of Land Use •Residential 25% •Commercial Retail 10% •Commercial Office 35% •Business Park 30% EDC-Community Core (392 acres) Envisioned as business park (predominantly light industrial and office uses) and limited support commercial uses. The EDC area east of the I-215 and north of Scott Road is envisioned to be a mix of commercial uses near the interchange and transitioning to office and residential extending north toward MSJC. On the west side of I-215, north of Scott Road, the EDC area provides an opportunity for commercial, residential and office uses with a high level of freeway accessibility. Avoid placement of residential units directly adjacent to the freeway. Preferred Mix of Land Use •Residential 30% •Commercial Retail 60% •Commercial Office 5% •Business Park 5% EDC-Southern Gateway (832 acres) •Industrial, Logistics, Business Park development interest/market trends •EDC vision –overall or specific subareas •Residential in the EDC •15% land area provision •Housing sites •Standalone, horizontal, vertical integration Discussion “We are building a safe, thriving, and premier place to be” •General warehousing, distribution centers, and storage (except noxious, explosives, or dangerous materials) •Permitted in EDC NG and SG •Conditionally Permitted in EDC-MB •Multi & Single Family Residential •Conditionally permitted in all EDC areas with restriction –no residential within 1,000 feet of I-215 Zoning Use Table Warehouse & Distribution Warehouse & Distribution Office/R&D Office/R&D •Need updated exhibit from John