Beacon Economics Inland Empire Forecast

2014
Riverside/San Bernardino
Economic
Forecast
Presented by
Beacon Economics, LLC
University of California at Riverside, School of Business Administration
Volume 7 Number 1 October 2014
This publication was prepared by:
Beacon Economics
Christopher Thornberg, Founding Partner Jordan G. Levine, Economist

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Contents
U.S. Forecast 1
California Forecast 9
Inland Empire Forecast 19
Employment 27
Business Activity 35
Residential Real Estate 47
Commercial Real Estate 57
Demographics and Quality of Life 75

Inland Empire
Metropolitan Statistical Area
Searles Valley
California
n
Barstow Needles
Adelanto
Apple Valley San Bernardino Lake Havasu City
Victorville
Hesperia
Parker Strip
Crestline Lake Arrowhead
Big Bear Lake
Big River
Yucca Valley Twentynine Palms
d San
Rancho Cucamonga Bernardino Highland
Claremont Fontana Rialto Joshua Tree
Pomona Loma Linda Mentone Morongo Valley
Ontario Colton
Glen Avon
Chino RubidouxRedlands Yucaipa
Mira Loma Calimesa Banning
Diamond Bar Pedley Desert Hot Springs
Moreno Valley Cherry Valley
Chino Hills Norco
Yorba Linda Riverside March AFB
Cathedral City
Woodcrest Beaumont
Corona
Anaheim
Nuevo
Perris
San Jacinto
Palm Springs
Idyllwild-Pine Cove Rancho Mirage
Hemet Palm Desert
Sun City Blythe
Canyon Lake Winchester Indian Wells Indio
Riverside
Lake Elsinore Coachella
La Quinta
Wildomar
Murrieta
Temecula
BEACON ECONOMICS
U.S. Forecast
by Christopher Thornberg
Contents
Zero To Hero 2
Curb Your Enthusiasm 2
The Bounce In Our Step 3
On Policy and Prices... 7
U.S. Forecast
Zero To Hero growing momentum will be driven by improving fun-

damentals.
In 2008 the U.S. economy sunk into the deepest down- As for major risks, they remain largely external – al-
turn since the Great Depression. By the end of that though there is nothing on the international front
year most of the globe had followed the United States that could seriously derail the nation’s economy. The
into recession and in 2009 global output shrank by global economy remains the swing item. If there is a
over 2%, the first time that has happened since World better recovery than expected, then next year will be
War II ended. The United States was not the only coun- better than Beacon Economics’ current forecast. If it
try with a large housing bubble, nor were U.S. banks is significantly worse, then growth will likely dip into
the only to indulge in over-leveraging even as they in- the low 2% range. Regardless, the U.S. economy will
vested in highly risky assets. Nevertheless, it was clear continue to expand for the foreseeable future.
that the United States was at the heart of the problem.
Today, the global economy is weak again. Europe has
yet to fully pull out of the recession, led by sovereign Curb Your Enthusiasm
debt crisis, that it experienced last year. The BRICS
(an acronym for an association of five major emerg- The U.S. economy’s 4.6% growth rate in the second
ing national economies: Brazil, Russia, India, China, quarter of 2014 came as a relief to many policymak-
and South Africa) are also showing signs of trouble. ers after the -2% hit taken during the first quarter of
China, while still growing, has slowed and its real the year. Data from the third quarter have simply con-
estate markets are showing signs of distress. Brazil firmed Beacon Economics’ interpretation of the first
has slipped into a mild recession due to sagging com- quarter as a blip. Beacon’s monthly GDP estimate sug-
modity prices. Sanctions on Russia are clearly having gests that growth in the third quarter will come in
an impact on that nation and India has also slowed at 3.6%. Combine this with better labor market num-
sharply. The World Bank and the IMF have both had bers—on average 220,000 jobs were added per month
to scale back their growth outlook numerous times in over the last year and the official unemployment rate
the last few months. has dropped to below 6% for the first time since 2007—
and suddenly the economy looks like a talking point
But this time the United States is no longer at the
for the Democrats rather the Republicans. Although
core of the problem; quite the opposite, the U.S. econ-
this does not seem to be having any impact on the out-
omy will be an important source of strength glob-
look for the midterm elections.
ally as these nations work to reverse course and get
back onto a growth trajectory. Nearly every part of Still, while there is little doubt the mid-year num-
the U.S. economy is showing real signs of slow but bers look good, these big numbers are really just a
steady improvement, from housing to public spending bounce from the weak first quarter – a quarter that
to credit. The only portion of the economy that is act- was largely an artifact of the extreme weather expe-
ing as a drain on the nation is the export sector—for all rienced in many parts of the nation and of a big run
the aforementioned global reasons. That said, the U.S. off in inventories (likely also related to weather). The
economy will keep growing this year, but at slightly second and third quarters were largely mirror images
below 3%, a bit slower than last year. Next year, ex- of the first, as growing inventories and a bounce in
pect the U.S. economy to grow at a pace modestly over consumer spending made up for ground lost earlier in
3%, with the following year improving even more—the the year. Average the three quarters out and growth
is running at about 2%.
2 2014 Riverside/San Bernardino Economic Forecast

U.S. Forecast
One small part of the slowing is in the estimates of Right now the United States still doesn’t have the
consumer health care expenditures. This seems odd, ‘umph’ to close the output gap that opened during the
given that other numbers on consumer spending, in- course of the downturn. And while the labor markets
cluding retail sales, auto sales, and other more eas- are modestly stronger, the operative word is ‘modest’.
ily measured forms of spending, are rising. Addition- Participation rates are still under 63%, far below the
ally, by all accounts, approximately 7 to 8 million more 66% level prior to the recession. Wage growth remains
Americans have health insurance today compared to tepid—even if other sorts of income are doing better.
one or two years ago. If anything, health care expen- And none of this suggests that there will be a dramatic
ditures would be expected to increase. And healthcare shift in Federal Reserve policy any time in the near fu-
employment continues to grow at a steady 2% annual ture.
pace. Add it up and it seems this is more likely a glitch
in the U.S. Bureau of Economic Analysis’ (BEA) esti-
mates rather than a real phenomena. The Bounce In Our Step
The real reason for the deceleration is the nation’s
external accounts, with a sudden widening of the The current trends do seem to be a frustrating re-
trade deficit. Beacon Economics’ initial outlook for peat of the last few years—three steps ahead, two steps
GDP growth in the 3% range in 2014 was based largely back. But in reality there are plenty of indications that
on the assumption that the trade deficit would con- the United States is shifting towards being in a higher
tinue to close. But this didn’t happen. Instead, a weak growth regime, with many economic indicators pick-
global economy slowed export growth sharply, even ing up steam on many fronts. Indeed there is enough
as stronger demand in the United States caused im- momentum in the nation’s economy to push us past
port growth to accelerate. the problems in the broader global economy. Follow-
ing is an overview of some of the brighter spots in the
U.S. economy—consumer spending, construction and
Contributions to Real GDP Growth
business investment—followed by a look at trade and
Component Q1-14 Q2-14 Q3-14 Avg. Diff.
public spending, two areas that are preventing even
Real GDP -2.1 4.60 3.60 −1.09
better growth rates.
Consumption 0.83 1.75 1.50 −0.54
Durable goods 0.23 0.99 0.79 0.24 Consumer Spending
Nondurable goods 0.00 0.34 0.26 −0.19
Consumer spending, outside of healthcare, has been
Services 0.60 0.42 0.46 −0.59
Private Domestic Inv. -1.13 2.87 1.21 −0.33 growing at a steady pace since the start of 2014. Auto
Structures 0.08 0.35 0.17 0.08 sales have hit a 17 million annual pace in recent
Equipment -0.06 0.63 0.51 0.01 months—the best showing since before the recession.
IP products 0.18 0.21 0.26 0.11 Retail sales have been growing at a nominal 4.5% an-
Residential -0.17 0.27 0.27 −0.08
nualized pace in recent months. And there are plenty
Change in Inventories -1.16 1.42 0.00 −0.45
Net Exports -1.66 -0.34 0.78 −0.67
of indications that the pace of growth will at least be
Exports -1.30 1.43 0.89 −0.33 maintained over the next year.
Imports -0.36 -1.77 -0.11 −0.34
The labor market is showing some of the strongest
Government -0.15 0.31 0.13 0.44
Federal -0.01 -0.06 0.06 0.48 growth since the end of the recession, expanding at a
State/Local -0.14 0.38 0.07 −0.03 pace of 200,000 plus jobs per month over the last year.
Source: U.S. Bureau of Economic Analysis Moreover, the nation’s headline unemployment has
2014 Riverside/San Bernardino Economic Forecast 3

U.S. Forecast
dropped below 6%. And while there are still a higher Non-Education Consumer Credit
than normal number of distressed workers (long term Q1-07 to Q2-14
2,000
unemployed, discouraged, or under employed) the 5
Year-Over-Year Growth (%)

trend in unemployment is clearly on a downward tra- 1,900
jectory. The labor markets may start to look ‘normal’ 0
$ Billions
1,800
again within two years. Also encouraging, personal in-
-5
come growth has been expanding at a better pace. Real 1,700
aggregate disposable personal income is growing at a
-10
2.7% pace, after running flat for most of 2013. 1,600
Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
Distressed Workers and Real Disposable Income Growth Total Y-o-Y Growth
United States, Jan-04 to Sep-14 Source: Federal Reserve
0
4.
0
00
0, 2
0 Construction
Y-o-Y Growth (%)
(000s)
2.
0
00
15,
0
Workers
0.
Construction is one of the big shortfalls in the U.S.

0
00
1 0,
economy (as noted in past years’ reports). Prior to the

.0
-2
0
00
downturn, close to 8% of U.S. GDP went to residential

5,
.0
-4
0
Jan-04 Jan-06 Jan-08 Jan-10

year
Jan-12 Jan-14 and nonresidential investments. Today, that figure is
LT Unemployed PT Economic 6%, and with multiplier effects, explains close to half
Marginal
Disposable Income Growth
Discouraged
the output gap in the U.S. economy. Housing permits
Source: Bureau of Labor Statistics remain stuck at one million units, with disappointing
sales of new homes constraining construction of new
Another bit of good news comes from consumer single-family structures. Existing home sales have also
credit. Outside of student debt, consumer credit softened this year, leading some to predict another
growth has been very subdued in recent years. But slump in the market. There are, however, other sig-
in 2014 things have started to shift. Consumers have nals that housing is not in a slump—but rather at the
become more comfortable with borrowing as their fi- front end of a solid expansion.
nancial confidence and net worth has expanded, and
While sales of existing homes have slowed, this ap-
the banking system has been more willing to add loans
pears to be largely due to a decline in the number of
to their balance sheets. The pace of expansion is now
foreclosures rather than a pull back in what might
over 6% per year. And with the savings rate remain-
best be termed ‘retail’ demand—move-up owner-
ing at a sufficient level, there is little sign of Americans
occupants shifting to new properties. Indeed, other
over-extending themselves like they did in the middle
indicators continue to suggest the market is not ‘soft’
of last decade.
by any traditional measure. Inventories of units for
sale remain tight and prices are still rising, albeit at
a slower rate than earlier in the year. Rather, the pull
back by investors has not yet been made up for by bet-
ter retail buyer demand.
But that increased retail demand looks to be on the
horizon. The recent growth in home prices has added
substantially to home equity—which is now close to

U.S. Forecast
$14 trillion, up from $8 trillion at the bottom of the pushed rent prices towards pre-recession levels and
slump. Credit has also been a problem, but again, con- the net result has been a new wave of construc-
ditions are easing. Recent Fannie Mae data shows a tion—either of new structures or to repurpose exist-
decline in the average FICO score for new borrowers. ing ones into more high-demand products. With busi-
Data from the Federal Reserve’s Senior Loan Officer ness activity continuing to grow, this trend will very
Survey indicates that banks are starting to ease credit likely continue for the next few years.
conditions for prime mortgage loans. And data on out-
Business Investment
standing mortgage debt held directly by the banking
system is beginning to grow slowly for the first time in Corporate profits and proprietor incomes have
years. The coming increase in retail demand implies bounced back faster than almost any other part of
more need for new product—which should give new the economy since the recession came to an end.
home construction a nice lift in 2015. They are now 35% higher than before the downturn
began. Low interest rates, benign wage growth, and a
Beacon Economics expects the second half of 2014
weak dollar have all contributed. Still, recent reports
to show distinct improvement in terms of sales and
have suggested that businesses have not used the
building permits over the first half. Preliminary statis-
positive environment to expand real investment.
tics for the first two months of the third quarter
Rather, the story goes, they are only interested in
appear to back this up—existing home sales have
various financial maneuvers, from buying back stock
started to increase again, and new home sales have
to purchasing other firms to finding interesting ways
also jumped somewhat.
to avoid paying taxes.
Traditional Sales Actually the idea of declining investment by business
United States, Q1-04 to Q2-14
8,000
isn’t true—it is an illusion caused by the declining cost
of various sorts of investment, particularly informa-
7,000
tion technology. Real (price adjusted) investments in
Sales (000s, SAAR)
6,000 equipment or intellectual property as a share of U.S.

GDP are currently at record high levels. And there is
5,000
plenty of reason to believe the level of investment
4,000 will continue to grow. In the short term, orders and
shipments of durable capital goods have risen sharply
3,000
Q1-04 Q3-06 Q1-09 Q3-11 Q1-14 and the third quarter will likely show solid growth
Source: driven by spending. Capacity utilization has contin-
ued to rise, a good leading indicator of more busi-
Non-residential spending has also started to ramp ness investment for the near term. And the ISM in-
up in recent months. Much of the growth contin- dexes for manufacturing and non-manufacturing ac-
ues to be in ‘alternative’ projects such as private in- tivity are also strongly in the black.
frastructure and manufacturing. But traditional com-
mercial projects—retail, office, hotel, and industrial
space—are also starting to expand rapidly, despite
the relatively high vacancy rate in these markets. Al-
though overall vacancy rates are higher, there are
pockets of high-demand and specialty type products
that are in short supply. Demand in these areas has

U.S. Forecast
Private and Public Investments as Shares of GDP most amazing considering that partisan debates over
20 5.0 the issue were so vitriolic in the past few years they
Private Investments (% of GDP)
Public Investments (% of GDP)

18 4.5
spooked the financial markets on more than one oc-
casion and directly led to the downgrading of Federal
16 4.0
debt by two rating agencies. But despite the smaller
14 3.5 deficit, the outlook for spending remains constrained.
There is little desire in Congress to increase spending,
12 3.0
particularly given that the budget will be hit again by
10 2.5 expanding military operations in the Middle East.
Q1-05 Q1-07 Q1-09 Q1-11 Q1-13
Private Investment Public Investment State and local governments continue to struggle to
Source: Bureau of Economic Analysis increase their spending as pension problems and debt
left over from the recession limit their ability to invest
Ultimately, business spending is driven by health in in their communities. There have been some gains. In
other parts of the economy. As consumer spending ex- California, the passage of Proposition 30, which raises
pands along with construction, it will continue to bol- income and sales taxes, has created a modest budget
ster the need for business investment. surplus. But losses in funding from the Federal gov-
Still, although consumer spending, business invest- ernment, driven by austerity policies, are in part off-
ment, and construction are clearing heating up, other setting those modest gains.
weaknesses in the economy will keep the United Still, non-Federal spending added one-third of 1% to
States from growing at an even faster pace. growth in the second quarter—the best number since
Public Spending before the recession. And both state and local govern-
ments are adding jobs again although overall levels
Government plays two roles in our economy. The first of employment remain far below where they were in
is as the primary investor in many public infrastruc- 2007. If nothing else, state and local governments may
ture projects—from roads to schools to security. This no longer be the same drag they have been over the
part of public spending is down—way down. Public last few years.
direct spending today is 13% of the economy, down
from 15.5% in 2000. Public spending is another of the Trade
three imbalances in the current U.S. economy, and The trade gap has come a long way from the peak
while things are looking better, the improvement has it hit in 2006, but is still too large to be sustainable
only been marginal. Although deficits have closed, de- in the long run. And with the U.S. dollar well below
mands from transfer programs (social security, public where it was in 2001—save for the weakness in global
health care, subsidies, pensions, and other programs) growth—there is no reason that demand for U.S. prod-
have largely absorbed new revenues leaving direct ucts shouldn’t be growing faster than demand for im-
spending constrained. ports except for the weakness in the global economy.
With faster growth in the economy and the end of
various fiscal stimulus programs, the budget deficit
at the Federal level has closed sharply. It is currently
60% less than it was at its peak back in 2010. As a re-
sult, the issue has completely fallen out of political de-
bates leading up to the midterm elections. This is al-

U.S. Forecast
Real Value U.S. Dollar, Broad Index Beacon Economics is relatively benign on rates even
120 though Fed recession policies are ending because the
impact of these policies on interest rates has likely
Index Mar-73 = 100 (NSA)
110 been overestimated by quite a bit—and anticipation

of the negative effect of their withdrawal is largely
100 overblown. The vast majority, 86% to be exact, of
money placed ‘into’ the economy through Quanti-
90 tative Easing 1, 2, and 3 still sits in the vaults of
banks as excess reserves—and is not ‘in’ the econ-
80 omy in any real way. Consequently, this is not hav-
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
Source: Federal Reserve
ing any substantial impact on interest rates or infla-
tion. And growth rates in lending aren’t high enough
While the global economy will hopefully start to stabi- to threaten the situation anytime soon.
lize, the asymmetric nature of the recovery is leading Outstanding Bank Balances and Excess Reserves
to another short-term problem. Better U.S. numbers 15 3,000
suggest the Federal Reserve will start backtracking on

Year-Over-Year Growth (%)
10
interest rate policies faster than other central banks 2,000
across the globe. This speculation has put some up-
$ Billions
5
ward pressure on the U.S. dollar. It is now 5% higher
than last year. This will put some dampening pressure 0
1,000
on exports. Still, the good news is that ongoing growth

-5
in U.S. energy production should continue to reduce 0
demand for imported energy products. 1/1/2006 1/1/2008 1/1/2010 1/1/2012 1/1/2014
Outstanding Bank Balances Excess Reserves

On Policy and Prices...

The only major issues with the potential to upset the
apple cart are a bout of inflation or the Fed trying
And what of the market’s fear of changes in Federal to head off a perceived bubble in the market. Recent
Reserve policy? What about inflation? Beacon Eco- reports show inflation to be slightly faster than ear-
nomics sees little that will change the current path lier in the year, yet still only about 2% year-over-year,
of policy or price growth. The first half of 2014 looks a fairly modest pace. Some commentators have been
weaker than 2013, and that suggests a more, rather fretting that wage growth in a tighter labor market
than less, dovish Fed for the balance of the year. Quan- will push up inflation. The evidence for such ‘wage-
titative easing is largely finished, but the Fed will be led inflation’ is, at best, thin in the literature and data.
happy to sit on their current balance sheet for a while. Why this is considered to be a major concern is not
The only major lever to pull will be the inevitable in- clear. In any case, real per capita disposable incomes
crease in the Fed Fund rate—something that is likely are only growing at 1.5% year over, and unlike corpo-
to happen late this year or in early 2015—but in a grad- rate profits, have yet to see any substantial recovery.
ual manner. Beacon Economics sees the Fed’s rate up
to possibly 2% by the end of 2015. Long-term rates will Realistically, there simply isn’t enough excess cash in
respond, but only modestly. the system to create a sustained surge. Money growth
remains at a modest level because of all the cash sit-

U.S. Forecast
ting in excess reserves. And the Federal Reserve can

see the situation forming long before it becomes a
problem. Beacon Economics doesn’t see inflation as a
problem.
Money Supply (M2)

12
Year-Over-Year Growth (%, Smoothed)
-4
Q1-80 Q1-85 Q1-90 Q1-95 Q1-00 Q1-05 Q1-10
The only real fear is that the Federal Reserve start

pushing rates up sharply in response to a perceived
financial bubble—the way it did between 2004 and
2006—with little impact on the bubble it should be
noted. Beacon Economics doesn’t believe the markets
are too high at this point, so it is too early to make such
a forecast. But, one bit of irony is that Wall Street’s
own irrational fear of the Federal Reserve may well be
the thing that prevents the Fed from having to act.

 
California Forecast
by Jordan G. Levine
Contents
California Overview 10
What’s Right Cyclically? 10
What’s Wrong Cyclically? 13
What’s Right Structurally? 14
What’s Wrong Structurally? 15
The Forecast 16
California Forecast
California Overview Finance, has seen an uptick over the past four years,
since the recession ended.
With the Great Recession firmly in the rear-view mir- Moreover, as of August 2014, California had outpaced
ror, and California’s economy well into its recovery, job growth in the nation overall for 30 consecutive
it’s a good time to assess both what is working in the months. In August, California dipped from the 9th
state, and the greatest challenges that still lay ahead. fastest growing state in the nation (June 2014) to the
The following forecast focuses on what’s right in to- 13th fastest. However, the number of jobs created was
day’s California, which areas need improvement, and second only to Texas (314,000 vs. 395,000). In fact, one
where the state’s economy is headed over the next five out of every eight jobs created nationwide over the
years. last 12 months was created in California.
Nonfarm Employment Growth, 2013 to Current
Growth (% Year-over-Year, SA)

California Outpaces U.S. Average
What’s Right Cyclically? 4.0
3.0
From a cyclical standpoint, many things are going well
in California’s economy. 2.0
Labor Markets: Employment in the state is growing 1.0

consistently. In June 2014, California finally surpassed
its pre-recession employment peak, recovering all of 0.0
Fe -13
M 13
Ap -13
M r-13
Ju -13
Ju 13
Au l-13
Se -13
O -13
N -13
D -13
Ja -13
Fe -14
M 14
Ap -14
M r-14
Ju -14
Ju 14
Au l-14
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the 1.35 million jobs lost during the downturn and
Ja
reaching the state’s highest level of nonfarm jobs on California United States
Source: U.S. Bureau of Labor Statistics
record. Through August 2014, California added an ad-
ditional 75,700 jobs and now has nearly 90,000 more
Broader Economic Conditions: Virtually every key
jobs than it did at the height of the previous bubble.
economic indicator in California is moving in the right
California Labor Markets, Jan-90 to Aug-14 direction: GDP is expanding in real terms, incomes are
Nonfarm Employment Reaches Record High rising in the aggregate, consumer and business spend-
Nonfarm Emp. (Millions, SA)
16.0 12.5
ing is approaching its fifth year of consecutive growth,
Unemployment Rate (%, SA)
15.5 11.5
15.0 10.5 and the state’s unemployment rate has fallen from a
14.5 9.5 peak of 12.4%, to 7.4% (August 2014) despite the fact
14.0 8.5 that the labor force has expanded since the end of the
13.5 7.5
downturn.
13.0 6.5
12.5 5.5 California Economic Indicators
12.0 4.5
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
Indicator 2012 2013
Nonfarm Employment Unemployment Rate Real GSP Growth (%) 2.7 2.0
Source: California Employment Development Department
Personal Income Growth (%) 5.0 2.8
Taxable Sales Growth (%) 7.3 6.8
Every major metropolitan area in California has ex- Unemployment Rate (%) 10.4 8.9
perienced a return to job growth, although some re- Labor Force (Millions) 18.52 18.60
gions continue to do better than others. Similarly, ev-
Source: Various
ery job sector, with the exception of Government and

California Forecast
Fiscal Situation: California’s budget continues to heal California Housing Market, 2005 to 2014
with Governor Jerry Brown earning some national Prices Rise Amidst Low Inventories
praise for balancing the books.1 Although the budget 20 500
Median Prices ($000s, SA)

Months of Supply (SA)
situation is more nuanced than the headlines suggest, 15
450
revenues have improved tremendously. With the pas- 400
sage of Proposition 30, which raised income and sales 10 350
taxes, General Fund receipts are up by more than 18% 300

5
since hitting bottom in 2011-2012 when the previous 250
temporary sales tax increase expired. And, for the past 0 200
two years, receipts have actually outstripped expendi- Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14
tures, resulting in a $1.9 billion positive balance in the Inventory Prices

Source: California Association of Realtors and DataQuick
state’s General Fund as of the end of fiscal year 2013-
2014. This improvement is being felt at the local level
as both sales taxes and property taxes rise across Cal- Home sales in California have been lackluster and
ifornia. largely viewed as a disappointment by the markets
and in the media. Sales have indeed been weak on the
California General Fund surface. However, the reason for the lackluster total
Receipts Exceed Expenditures Again
110 sales figures is due to the reduction in new foreclo-
sures across California. When foreclosures are omit-
100
ted from the equation, California home sales have
Billions
90
been on the uptick in 2014. Although the headline fig-
80 ures have disappointed some, they are the result of
70 very positive trends.
60
California Home Sales, 2005 to 2014
1998 2000 2002 2004 2006 2008 2010 2012 2014
Fiscal Year Ending Sales Lag Due to Fewer Foreclosures
Total Receipts Total Expenditures
120,000
Source: California State Controller's Office

100,000
Sales (SA)
Residential Real Estate: After precipitating many of 80,000

the issues that drove the state and nation into reces-
60,000
sion in the first place, California’s real estate markets
are also on a robust growth path. The median price 40,000
of an existing single-family home has been growing Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
by double-digit percentages all across the state since Sales Sales Less Foreclosures
June 2012. The growth is due in part to limited inven- Source: DataQuick
tory, which the California Association of Realtors esti-

mate was at just 4.0 months of supply in August 2014. Residential Permits: New construction activity con-
The numbers of distressed units coming onto the mar- tinues to grow as builders are enticed by rising prices
ket has also fallen as defaults and foreclosures have and limited inventories. Multi-family properties make
plummeted in the wake of the recovery. up the majority of new residential units being built
in the state, driven by demand, as the renter popula-
1
Thomas Del Beccaro, "Jerry Brown Stands Atop California's tion has increased significantly since the foreclosure
Collapsing House Of Cards", Forbes.com, July 8, 2014.

California Forecast
crisis. And unlike many other states, the vacancy rate California Nonresidential Permitting
for both ownership (1.2%) and rental properties (5.2%) Aug-14 YTD Change
is very low, which should continue to drive new con- Indicator
($Mill.) (%)
struction permits for both single- and multi-family
New Commercial 4,632 49.9
properties into the future.
Office 1,183 48.4
California Residential Permitting Retail 1,835 29.2
Aug-13 Aug-14 Change Hotel 548 204.4
Indicator
YTD YTD (%) Industrial 522 -16.2
Other Nonres. 2,386 -18.4
California
Nonres. Alts./Adds. 7,940 21.9
Multi-Family 27,179 26,730 -1.7
Single-Family 24,867 25,768 3.6 Total Nonres. 15,479 17.7
52,046 52,498 0.9 Source: California Homebuilding Foundation
United States Tourism: External forces are also propelling Califor-

Multi-Family 219,274 256,523 17.0 nia’s economy ahead.
Single-Family 428,989 426,681 -0.5
California Hotel Market, 2005 to 2014
Total 648,263 683,204 5.4 Hotel Occupancy at All-Time High
Average Daily Rates ($, SA)

75 150
Hotel Occupancy (%, SA)
Source: U.S. Census Bureau

140
70
Commercial Real Estate: The commercial side of the
130
real estate market was much slower out of the 're- 65
covery' gate than were residential properties. How- 120
ever, California’s nonresidential market is experienc- 60

110
ing progress. Vacancies for office space in particular,
55 100
while remaining high, have begun to decline. Indus- Apr-05 Oct-06 Apr-08 Oct-09 Apr-11 Oct-12 Apr-14
trial properties in California stand out as the healthi- Occupancy Average Daily Rate
est part of the commercial market with vacancy rates Source: VisitCalifornia
now in the low single-digits in most major metropoli-

tan areas. Hotel occupancy in the state was up 1.7 percent-
age points in August 2014 from one year prior. That
Nonresidential Permits: Improvements in the com-
puts hotel occupancy at nearly 73% statewide—almost
mercial real estate market have spawned new com-
8 percentage points higher than the national aver-
mercial development projects. Through August 2014,
age. At the same time, average daily room rates have
nonresidential permit values were up 17.7%, with
climbed by more than 8% over the past year to $145.80.
gains spread between the development of new office,
And at California’s airports, international passenger
hotel, and retail space, and alterations/additions to
traffic was up more sharply than domestic passenger
existing structures. The increased activity, coupled
traffic indicating that the state remains a top tourist
with improving residential market conditions, should
destination for foreign visitors.
help drive additional job growth in Construction over
the next few years.

California Forecast
What’s Wrong Cyclically? On the other hand, collectively, there are still 500,000
fewer jobs in the Retail, Construction, and Manufac-
Although the cyclical effects of the recent recession turing sectors. Many former Retail and Construction
continue to fade, that progress has not been spread workers are not in a position in terms of skill sets to
evenly across the population base. Some Californians tap into the faster growing and higher wage Profes-
are doing much better in the current economic envi- sional job sector. As such, at least 25% of the state’s
ronment than others. unemployed workers have been unemployed for over
six months—a point at which their skill levels and em-
Workers Left Behind: California recently returned to ployability begin to erode.
its pre-recession peak employment level. However,
the sectors that experienced the most growth dur- Rising Inequality: Given the uneven growth across
ing the recovery are not the same sectors that lost higher and lower wage job sectors, income inequality
the most jobs during the recession, and many work- in California has increased in the wake of the reces-
ers continue to face difficulty finding work. For exam- sion.
ple, the Healthcare, Professional/Scientific/Technical California Income Inequality
sector has at least 100,000 more jobs now than at the Income Distributed More Unevenly
Percent of Total Income

100
peak of the bubble. 90
80
70
60
California Employment Levels 50
40
Jul-07 Aug-14 Diff. 30
Industry 20
Peak (Current) (000s) 10
0
Education/Health 1,919.6 2,405.3 485.7 0 10 20 30 40 50 60 70 80 90 100
Income Percentile
Leisure/Hospitality 1,562.6 1,721.7 159.1
Perfect Equality 2000
Prof/Sci/Tech 1,062.9 1,190.6 127.7 2012
Admin Support 999.7 1,025.9 26.2 Source: U.S. Census Bureau
Management 207.2 226.0 18.9

Other Services 514.2 524.6 10.4 In 2012, the top 20% of income earners in the state ac-
NR/Mining 26.7 31.5 4.8 counted for 52.6% of all income earned. In 2000, the
Logistics 511.7 512.1 0.4 top 20% of income earners accounted for just 50.1%
Information 471.4 471.7 0.3 of all income earned. Income has become increasingly
concentrated and inequality has risen over the past
Wholesale Trade 717.3 709.0 -8.3 decade as high-income earners have done better and
Real Estate 284.2 264.2 -20.0 middle-income earners have been more prone to mi-
Retail Trade 1,691.6 1,626.9 -64.7 grate out of California in search of more affordable
Finance/Insurance 614.2 514.3 -99.9 housing.
Government 2,498.0 2,389.3 -108.7
Manufacturing 1,468.8 1,250.6 -218.2 Lackluster Wage Growth: Although nominal wages
Construction 899.4 676.4 -223.0 have been rising over the past 15 years, so too has
the cost of housing, goods, and services. Adjusting an-
Total Private 12,951.8 13,150.3 198.5
nual average wages into real terms with the Consumer
Total Nonfarm 15,449.8 15,539.6 89.8 Price Index for the western region, and wage growth
Source: California EDD has been lackluster at best.

California Forecast
California Real Wages ports along the Gulf of Mexico, California will still re-
Wage Growth Marginally Positive over Long Term main competitive for time-sensitive deliveries as well
32,000
10 as for the next generation of super-ships that will be
YoY Growth (%, SA)

Real Wages ($, SA)
31,000 too large for even the widened Panama Canal to ac-
5
commodate.
30,000 0
Educated Workers: California has long been home to
29,000 -5 a highly educated workforce.
28,000 -10
Q1-00 Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 U.S. Educational Attainment, 2012
California Still Relatively Educated
Real Wages Growth
Avg. Growth No Growth Massachusetts
Colorado
Source: VisitCalifornia
Connecticut
Maryland
New Jersey
Vermont
In fact, wage growth has only been slightly more pos- Virginia
New Hampshire
itive on a year-over-year basis than it has been nega- New York
Minnesota
tive with growth dropping below zero in 23 of the past Washington
Illinois
56 quarters. On average, real wages in California have Rhode Island
California
grown by 0.66% since 2000, and at the end of 2013, real
0 10 20 30 40
wages are almost identical to what they were at the % of Pop. with a Degree or Higher
turn of the century, meaning that the quality of life Source: U.S. Census Bureau
for the average Californian has not improved much.

According to data from the U.S. Census Bureau, over
30% of California residents hold at least a bachelor’s
What’s Right Structurally? degree. That ranks 15th nationwide, and represents a
solid contingent of skilled workers who feed the high-
In addition to its more recent recovery from the reces- tech industries synonymous with the state. Indeed,
sion, California’s many structural assets and advan- California has been ranked amongst the most innova-
tages will also help stimulate economic growth over tive states in the entire union.2
the next five years. Venture Capital: Perhaps as a result of the skill and
Strategic Infrastructure: California is home to in- educational levels of California residents, the state
frastructure that will help generate jobs and eco- continues to be a center for technology-based growth
nomic activity as the state moves ahead. When com- and new inventions. Venture capital funding has seen
bined, the Ports of Los Angeles and Long Beach are the strong, though bumpy, growth since hitting bottom in
second largest exporting ports in the nation, behind 2009. Total venture capital funding in California ex-
only Houston. Add exports from Los Angeles Interna- ceeded its pre-recession peak during the first quar-
tional Airport and more goods are shipped through ter of 2014—nearly doubling over the first quarter of
the Southern California economy than from any other 2013. Indeed, in 2013 California received more than
port in the nation. While there have been concerns half of all venture capital investment in several high-
over the competitive threats associated with the ex- tech categories including Semiconductors, Computers
pansion of the Panama Canal, those fears are largely 2
CNN Money, "10 most inventive states", October 24, 2012,
overblown. Although some firms may find it advan- http://money.cnn.com/gallery/smallbusiness/2012/
tageous to circumvent West Coast ports in favor of 10/24/states-patent-invention/.

California Forecast
and Peripherals, Telecommunications, Media and En- According to the U.S. Patent and Trademark Office,
tertainment, Software, and IT Services.3 over 27% of all utility patents issued to domestic firms
and individuals were granted in California last year.
Venture Capital Investment in 2013 Since this patent data first started to be collected in
California United California 1963, California has been home to more than 18% of
Industry all domestic patents issued. That is roughly six per-
States Share (%)
centage points higher than the state’s share of the U.S.
Semiconductors 395 601 65.7
Computers/Periphs. 327 517 63.2 economy overall, demonstrating that California has
Telecomms. 390 644 60.7 historically contributed more than its proportional
Media/Entertain. 1,753 2,963 59.2 share of technological advances in the nation.
Software 6,206 11,074 56.0
IT Services 1,017 1,965 51.8
Retailing/Distribution 122 237 51.5 What’s Wrong Structurally?
Medical Devices/Equip. 980 2,102 46.6
Healthcare Services 81 193 41.9
Bus. Products/Svcs. 91 218 41.8
Not only have Californians benefitted unevenly from
Biotechnology 1,919 4,655 41.2 the economic recovery, there are also a number of
Industrial Energy 601 1,491 40.3 long-term structural issues that persist in the state
Consumer Prods./Svcs. 423 1,259 33.6 and pose a threat to future economic growth. Fortu-
Networking/Equipment 212 672 31.6 nately, as the recession fades, the opportunity to focus
Electronics Instrs. 95 326 29.1 on these critical issues grows.
Financial Services 160 566 28.2
Other 23 98 24.0 Hyper-cyclical Budgeting: Cyclically, the passage of
Proposition 30 has helped raise needed public rev-
Total 14,793 29,580 50.0
enues as the economy gradually heals and home prices
Source: PWC MoneyTree
and incomes rise. However, the law has also made the
Innovation: California is also responsible for a signif- state’s General Fund more dependent on an even nar-
icant portion of all U.S. patent activity. rower segment of California’s tax base by raising the
U.S. Patent Activity, 1963-2013 top marginal income tax rates. While in an expan-
California Punching Above its Weight sionary mode, with the stock market yielding solid re-
turns, revenues are expected to over-perform. How-
ever, when the next eventual downturn hits the econ-
18.7%
omy, it will yield even greater fiscal woes as incomes
and financial markets inevitably contract. California’s
leaders have not displayed a serious commitment to
reforming the state’s tax structure in order to insu-
81.3% late against the business cycle. This includes revisit-
ing Proposition 13, taxing the consumption of services
California Rest of U.S.
and not just goods, and a host of other options that
Source: U.S. Patent and Trademark Office would enable California to lower marginal income and
sales tax rates across the board.
Failure to Address Entitlements: California has yet
3
PWC MoneyTree to tackle its substantial long-term pension obligations

California Forecast
at the state and local level. Together, CalPERS and tain the most skilled workforce is critical to Califor-
CalSTRS represent nearly $140 billion in unfunded li- nia maintaining its advantage in the high-tech sectors
abilities—even after accounting for the recent stock that drive so much of the state’s economic growth.
market surge—and are still 24% and 33% unfunded,
Educational Attainment Levels
respectively. Some form of compromise between re-
Population with a Bachelor's or Higher
tirees and state and local governments is badly needed
as these unfunded obligations represent more than Location 2000 2012 Diff. (%)
one full year of General Fund receipts. California 26.6 30.9 4.3
Rest of US 24.1 28.9 4.8
CEQA and Housing Costs: One of California’s biggest
challenges is the state’s high cost of housing. The Education Gap (%) 2.5 2.0 -0.5
abuse of the well-intentioned California Environmen- Source: U.S. Census Bureau
tal Quality Act (CEQA) plays a large role in driving
Effects of Technological Change: Gauging and re-
up building costs by limiting and delaying construc-
sponding to technological change will remain a long-
tion projects. And with the recent surge in the real es-
term challenge for California and for all states. Com-
tate market, California has grown even more expen-
mercial real estate provides a strong example. With
sive relative to other states. California’s most inex-
the ubiquitous nature of the Internet, wireless tech-
pensive metro areas are on par with the most expen-
nology, laptops, smartphones, and tablets in today’s
sive metro areas in places like Texas, while Califor-
world, traditional relationships between employment
nia’s most expensive markets are quickly approach-
and commercial absorption are breaking down as
ing median prices of $1 million. That is well beyond
more workers telecommute, work remotely, or work
the reach of the average Californian, and as a result,
on-site for their clients. As such, the job growth that
the state has experienced more out-migration among
used to propel new commercial construction activi-
lower- and mid-income workers than among high-
ties, is expected to have a smaller and smaller effect
income workers. This worrisome trend deprives busi-
on commercial markets in California in the future.
nesses of a strong mid-skilled workforce and makes it
difficult to recruit talent because businesses can’t af-
ford to pay wages that would offer a desired quality of
The Forecast
life (such as the ability to buy a home). Containing the
excessive cost of housing should be a top policy goal,
Beacon Economics is forecasting ongoing improve-
and reforming CEQA should be at the heart of that pro-
ment in California’s economy through the life of the
cess.
forecast in 2019.
Education Gap Closing: California has historically
Employment growth will settle in at 2.5% by 2016
been a “barbell” state with many high- and low-skilled
and the unemployment rate is expected to dip be-
workers, and a shrinking population of mid-skilled
low 6% by mid-2017.
workers. It has always, however, had a strong con-
tingent of residents on the highly educated end of Home prices will continue to grow over the next
the scale. And while California remains a state with two years, although growth will cool to a 4% to 6%
a relatively educated population base, over the past pace that is more consistent with income growth.
decade or so, that education gap has slowly been clos-
ing as other states raise their levels of educational at-
tainment more and faster. Striving to build and re-

California Forecast
As home equity rises and bank lending increases,

home sales are also expected to turn around in
2015, rising by double-digit percentages next year.
As the economy continues to heal, new construc-
tion activity will be stimulated in the residen-
tial market (190,000 new units forecast over the
next two years) and the nonresidential market (4%
growth forecast this year).
Consumer spending is also forecasted to continue
its upward trajectory, growing by roughly 4% over
the next two years.
Cyclically, things are improving. Whether focusing
on employment, incomes, GDP, home prices, building
permits, or taxable sales (among many other indica-
tors), California’s economy is in growth mode. In fact,
despite the state’s many challenges, California contin-
ues to lead the nation in many key ways.
California also faces critical challenges including edu-
cation, infrastructure, housing costs, and the need to
invigorate manufacturing. Tackled appropriately, Cal-
ifornia could climb even higher in the state rankings
and become an even greater economic success.

State Historical Table
California Q1-2012 Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Q2-2014
Total Nonfarm Empl. (Mill, SA) 14.56 14.64 14.73 14.90 15.01 15.10 15.21 15.29 15.34 15.45
Growth (%,SAAR) 3.35 2.10 2.55 4.77 2.94 2.53 2.85 2.21 1.19 2.89
Unemployment Rate (%,SA) 10.83 10.67 10.37 9.83 9.37 9.03 8.90 8.43 8.10 7.60
Personal Income ($ Bill) 1,760.98 1,780.94 1,795.42 1,883.43 1,816.45 1,848.27 1,871.83 1,889.91 1,909.09 1,937.41
California Forecast
Growth (%,SAAR) 15.68 4.61 3.29 21.10 -13.49 7.19 5.20 3.92 4.12 6.07
Taxable Sales ($ Bill, SA) 136.50 137.55 139.69 143.93 147.04 149.36 148.88 151.51 152.31 155.27
Growth (%,SAAR) 9.02 3.09 6.39 12.70 8.93 6.46 -1.29 7.27 2.14 7.99
Single-Family Home Prices ($ 000s, SA) 251.18 263.10 274.87 296.50 308.59 336.76 350.23 361.20 368.06 373.57
Growth (%,SAAR) 18.42 20.38 19.13 35.40 17.34 41.82 16.99 13.13 7.81 6.13
Single-Family Home Sales (000s, SA) 87.79 86.64 85.43 89.89 86.75 86.96 87.45 79.04 73.58 78.65
Growth (%,SAAR) 32.62 -5.15 -5.43 22.55 -13.25 0.95 2.27 -33.26 -24.91 30.60
Single-Family Permits (000s, SA) 6.21 6.76 7.26 7.76 8.28 8.68 8.98 9.15 9.12 9.24
Growth (%,SAAR) 25.61 39.69 33.12 30.65 29.77 20.94 14.23 8.19 -1.51 5.43
Multi-Family Permits (000s, SA) 7.48 8.30 8.98 9.40 10.14 10.46 11.00 11.48 11.32 11.31
Growth (%,SAAR) 24.63 51.83 37.03 20.06 35.51 13.15 22.36 18.67 -5.59 -0.05
Nonresidential Permits ($ Bill, SA) 3.42 3.77 3.89 4.10 4.48 4.73 5.10 5.32 5.25 5.51
Growth (%,SAAR) 14.51 47.66 13.32 22.96 42.48 24.33 35.63 18.38 -5.08 20.78
Population (Mill) 37.79 37.87 37.95 38.04 38.12 38.20 38.29 38.38 38.47 38.56
Growth (%,SAAR) 0.82 0.84 0.86 0.87 0.89 0.90 0.91 0.92 0.94 0.96
Net Migration (000s) 11.07 13.14 14.86 16.24 17.26 17.93 19.14 19.79 21.42 22.76
Natural Increase (000s) 65.72 65.70 65.84 66.15 66.62 67.26 67.72 68.28 68.82 69.58
18
State Forecast Table
California Q3-2014 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016 Q4-2016
Total Nonfarm Empl. (Mill, SA) 15.52 15.60 15.70 15.79 15.88 15.98 16.08 16.18 16.28 16.39
Growth (%,SAAR) 1.83 2.24 2.37 2.42 2.44 2.45 2.51 2.52 2.53 2.56
Unemployment Rate (%,SA) 7.40 7.26 7.10 6.96 6.82 6.69 6.55 6.42 6.30 6.18
Personal Income ($ Bill) 1,947.71 1,973.43 1,997.80 2,021.99 2,047.54 2,070.85 2,098.08 2,124.32 2,152.03 2,180.80
Growth (%,SAAR) 2.14 5.39 5.03 4.93 5.15 4.63 5.36 5.10 5.32 5.46
Taxable Sales ($ Bill, SA) 156.99 157.14 158.70 160.74 162.09 163.12 165.62 168.06 170.14 172.59
Growth (%,SAAR) 4.51 0.39 4.04 5.23 3.41 2.57 6.28 6.01 5.04 5.89
Single-Family Home Prices ($ 000s, SA) 378.31 383.44 388.75 394.15 399.67 405.08 410.62 416.17 421.77 427.46
Growth (%,SAAR) 5.17 5.53 5.66 5.67 5.72 5.52 5.59 5.51 5.50 5.51
Single-Family Home Sales (000s, SA) 82.35 85.08 87.11 88.84 90.41 91.82 93.10 94.23 95.25 96.19
Growth (%,SAAR) 20.19 13.93 9.87 8.19 7.27 6.37 5.69 4.95 4.42 4.00
Single-Family Permits (000s, SA) 9.86 10.55 11.24 12.17 13.15 14.14 15.14 16.11 17.08 18.01
Growth (%,SAAR) 29.64 31.02 28.62 37.49 36.32 34.00 31.40 27.99 26.36 23.80
Multi-Family Permits (000s, SA) 11.48 11.85 12.50 13.44 14.61 15.93 17.34 18.72 20.00 21.16
Growth (%,SAAR) 6.05 13.62 23.50 33.81 39.74 41.37 40.11 35.87 30.47 25.13
Nonresidential Permits ($ Bill, SA) 5.66 5.77 5.91 6.03 6.16 6.29 6.40 6.52 6.64 6.75
Growth (%,SAAR) 11.28 8.17 9.83 8.82 8.60 8.46 7.76 7.50 7.26 6.93
Population (Mill) 38.66 38.75 38.85 38.95 39.05 39.15 39.26 39.36 39.46 39.57
Growth (%,SAAR) 0.99 1.00 1.02 1.03 1.04 1.04 1.05 1.06 1.06 1.06
Net Migration (000s) 24.76 25.95 26.92 27.61 28.13 28.49 28.73 28.91 29.02 29.06
Natural Increase (000s) 70.29 70.73 71.27 71.69 72.31 72.96 73.60 74.23 74.85 75.45
Forecasts by Beacon Economics
2014 Riverside/San Bernardino Economic Forecast

 
Inland Empire Forecast

by Rafael De Anda
Contents
Key Chapter Findings 20
The Third Recovery in 25 Years 20
Population 22
Employment 23
Business Activity 24
Real Estate 25
Key Chapter Findings
In comparison with the last economic recovery, from 2001 to 2005, the current economic recovery has
lacked support from the Construction and Retail Trade industries. However, both industries are starting
to heat up, a good omen for the economy at large.
Population growth, one of the underlying components of long-term economic growth, is projected to
bounce back over the next five years.
Employment growth was strong in 2013, and 2014 is shaping up to be a good year as well. Yet a fair number
of skilled and educated workers are still looking for work.
Auto sales and tourism are supporting local economic growth.
Although home prices have improved, there is plenty of room for growth.
The Third Recovery in 25 Years $3.6 billion difference, which is augmented by the in-
direct and induced impacts that affect other indus-
With the economy experiencing its third recovery in tries to a varying degree.
25 years, many Inland Empire businesses and resi- Through 2013, the current economic recovery also
dents are starting to feel at ease as the aftereffects lacked a lift from the Construction industry, a strong
of the dreadful Great Recession fade. As has been contributor to the recovery in 2001 to 2005. Beacon
well documented, the economic recovery has been Economics has long held the position that housing
painfully slow by historical standards and more slug- throughout the state is undersupplied, yet with home
gish than the upturns in neighboring coastal commu- prices slashed in half over the course of two years and
nities. However, other inland regions throughout the with commercial vacancy rates shooting upward in
state were equally bullied by the downturn and have the aftermath of the recession, many investors and de-
recovered at a similarly slow pace—with the excep- velopers were discouraged from building new housing
tion of the energy-rich Bakersfield metropolitan area, and commercial structures. The Construction indus-
which has seen robust economic growth. try contributed 0.1 percentage points to GMP growth
There are key differences between the Inland Empire’s from 2009 to 2013. In comparison, Construction added
current economic recovery and the recovery in the 3.9 percentage points to GMP growth from 2001 to
early 2000s. First, in this recovery, the Government 2005. Yet with investment now starting to pick up,
sector has not contributed to economic growth, owing particularly for massive warehouses and large-scale
to forces outside local leaders’ control. The Govern- residential developments, we expect Construction to
ment sector’s contribution to growth in economic out- be one of the largest contributors to economic growth
put, as measured by the region’s gross metropolitan moving forward.
product (GMP), was 2.4 percentage points of the total The current economic recovery has also lacked a sig-
24.9% GMP growth from 2001 to 2005. In comparison, nificant contribution from the Retail Trade industry.
the Government contribution to economic growth in From 2009 to 2013, Retail Trade accounted for 0.4 per-
economic output from 2009 to 2013 was a negative 0.7 centage points of GMP growth, compared with the 3.5
percentage points. In dollar value, that equates to a percentage point contribution to GMP growth from

Gross Metropolitan Product and Industry Contribution to GMP Growth in Recent Economic Recoveries
Real GMP Real GMP per Capita
Billions Contribution to Growth Per capita Contribution to Growth
Industry ($) (Percentage Points) ($) (Percentage Points)
2001 to 2009 to 2001 to 2009 to
2013 2013
2005 2013 2005 2013
All Industry Total 118.7 24.9 7.6 27,305 9.0 3.7
Total Private 95.8 22.4 8.4 22,050 9.3 5.2
Natural Resources and Mining 1.4 0.1 0.2 327 -0.1 0.2
Construction 6.3 3.9 0.1 1,453 2.3 -0.1
Durable Goods 5.4 1.6 0.0 1,249 0.7 -0.1
Non-Durable Goods 4.2 0.7 0.1 971 0.2 -0.0
Wholesale Trade 7.9 2.0 1.5 1,810 1.1 1.3
Retail Trade 10.5 3.5 0.4 2,425 2.0 0.1
Transportation and Utilities 8.4 2.1 1.0 1,922 1.2 0.8
Information 2.4 0.7 0.2 546 0.5 0.1
Finance and Insurance 3.1 0.9 -0.1 724 0.5 -0.2
Real Estate 18.4 1.2 3.3 4,243 -1.4 2.7
Prof., Sci., and Tech. Services 4.0 1.1 0.0 913 0.6 -0.1
Management 0.9 0.0 0.1 205 -0.1 0.1
Admin. Support 4.6 1.5 0.2 1,049 1.0 0.1
Educational Services 0.8 0.1 -0.1 173 0.0 -0.1
Health Care 9.5 1.3 1.1 2,177 0.4 0.7
Leisure and Hospitality 4.8 1.0 0.3 1,094 0.4 0.1
Other Services 3.3 0.6 -0.1 764 0.0 -0.3
Government 22.9 2.4 -0.7 5,263 -0.4 -1.5
Source: Bureau of Economic Analysis
2001 to 2005. Unemployment levels remained elevated employment in the current recovery grew by 5.5%
after the end of the recession, so consumers contin- from 2009 to 2013, a similar pace as during the 1990
ued to cut back on spending where possible. However, to 1994 recovery (5.5%) but well below the 2001 to
recent job growth figures in the region suggest that 2005 recovery (19.2%). Employment growth in Gov-
more consumers will soon return to spending on lux- ernment, Construction, and Retail Trade has been un-
ury goods and services, including automobiles. derperforming in the current recovery in compari-
son with the 2001 to 2005 recovery—much like pro-
The Real Estate industry, which includes a large vari-
duction figures demonstrated previously. Private em-
ety of services, such as leasing, sales, assessing, and
ployment growth in the most recent recovery (6.3%)
property management, was the only industry that
has outperformed private employment growth during
contributed more to the economic recovery from 2009
the 1990 to 1994 recovery. The booming Health Care
to 2013 (2.1 percentage points) than it did from 2001
industry accounts for the most distinct difference be-
to 2005 (1.2 percentage points).
tween the two recoveries. As more baby boomers have
Employment growth provides an alternative lens to begun to reach retirement age, the demand for health
view the current and past recoveries. Total nonfarm care services has increased.

The economy is poised to accelerate in the com- Estate, which are very dependent on additional pop-
ing years. The industries that provided the largest ulation growth because they mainly serve their lo-
contributions to the economic recovery in 2001 to cal communities. Demand for housing and commercial
2005—Construction and Retail Trade—have picked up structures grew consistently each year prior to the fi-
the pace of hiring through 2014. The recovery will nancial and housing crash that began as early as 2006
also be supported by logistics firms that are appear- throughout the Inland Empire. From 1995 to 2007, the
ing throughout the region and by health care facilities Inland Empire’s population grew by 2.7% per year.
that are expanding. Since then, population has grown at 1.0% per year. The
recession should have only temporarily dampened lo-
Employment and Industry Employment Growth in cal economic growth, but due to a deceleration in pop-
Recent Economic Recoveries ulation growth, the region’s economy has had even
Emp. Contribution to Growth more trouble recovering.
(000s) (Percentage Points)
Industry
1990 to 2001 to 2009 to Population Forecast
2013 Riverside and San Bernardino Counties, 1995 to 2019
1994 2005 2013
2.5
Total Nonfarm 1,226 5.5 19.2 5.5
Population (millions)
Total Private 1,001 4.5 17.2 6.3 2.0
NR/Mining 1 0.0 0.0 0.0
Construction 69 -2.5 3.3 0.1
1.5
Non-Durable Goods 30 0.4 0.0 -0.1
Durable Goods 57 0.5 0.2 -0.1
Wholesale Trade 56 0.3 0.8 0.6 1.0
Retail Trade 165 0.8 3.1 0.7 1995 2000 2005 2010 2015
Transport 79 1.2 1.5 1.0 Riverside County Riverside County Forecast

San Bernardino County San Bernardino County Forecast
Information 11 -0.1 0.0 -0.2
Source: Forecast by Beacon Economics
Financial Activities 42 0.2 1.1 0.0
Prof., Sci., and Tech. Svc. 38 -0.6 1.0 0.0
Management 9 0.2 0.1 0.0
Admin Support 86 1.2 1.9 0.6 Population in the Inland Empire will grow
Health Care 165 1.9 1.8 2.3 considerably because the current levels of
Leisure and Hospitality 136 0.7 1.7 1.1 home affordability will continue to attract
Other Services 41 0.4 0.3 0.3 households from throughout Southern
Government 225 1.1 1.9 -0.9
California.
Source: California Employment Development Dept.
In the coming years, Beacon Economics projects that

Population
population in the Inland Empire will grow consider-
ably because the current levels of home affordability
Strong or weak fundamentals in the local economy will continue to attract households from throughout
can alter the pace of economic growth, but two of Southern California. Cities like Ontario, Corona, and
the underlying factors in long-term economic growth Riverside are attracting many first-time buyers who
are technological change and population growth. Lo- cannot afford a traditional detached single-family
cal population growth from the late 1990s and early home in Los Angeles or Orange Counties. We project
2000s helped the region prosper, but it also created that population growth throughout the Inland Empire
high industry concentrations in Construction and Real will average 1.4% per year from 2014 to 2019, with

a strong return in domestic migration to the region. employment rates in the Cities of San Bernardino and
Furthermore, we project that both Riverside County Moreno Valley were estimated at 16.6% and 13.9%, re-
and San Bernardino County will grow equally, even spectively, in 2013. And many of these workers are
though recent population growth has favored River- well qualified and well educated. In the City of San
side County (1.1% in 2014) more than San Bernardino Bernardino, 3,370 unemployed workers (35%) look-
County (0.8% in 2014). ing for work had attended college or received an as-
sociate’s degree or higher, while 2,760 unemployed
As a result, a strong return in population growth will
workers (30%) in the City of Moreno Valley had the
lead to output growth that more closely resembles
same qualifications.
pre-recession levels.
The Logistics industry is particularly likely to expand.
Annual Economic Output Growth Widespread developments of warehouses and distri-
California and Inland Empire, 2002 to 2013
7.5
bution centers have been appearing over the last few
5.0 years, and more are coming online over the course of
Annual Growth (%)
2.5 the next year. Jobs at logistics centers require skills

0.0 and training, and thus pay livable wages. In 2013, the
-2.5 average wage at Transportation and Warehousing es-
-5.0 tablishments was 9.7% higher than in all private in-
-7.5 dustries ($41,340 per year).
02
03
04
05
06
07
08
09
10
11
12
13
20
20
20
20
20
20
20
20
20
20
20
20
Employment and Unemployment Rate Forecast

California GSP Inland Empire GMP Inland Empire, Q1-01 to Q4-19
Nonfarm Employment (000s, SA)
Source: Bureau of Economic Analysis
Unemployment Rate (%, SA)

1,500 15
1,200 10
Employment
900 5
Our headline from a year ago noted that employ- 600 0

ment was “slowly” moving forward. As we ex- Q1-01 Q1-04 Q1-07 Q1-10 Q1-13 Q1-16 Q1-19
pected, the California Employment Development De- Nonfarm Employment Nonfarm Employment Forecast
Unemployment Rate Unemployment Rate Forecast
partment produced revised employment numbers Source: Forecast by Beacon Economics
that showed even better job growth than previously
reported—upwards of 4% from August 2012 to Au- Jobs in the Health Care industry are also projected to
gust 2013. Employment growth in the Inland Empire continue to grow over the next five years, though not
through 2014 has continued to flourish, helping bring all of these jobs require advanced degrees. For exam-
down the region’s unemployment rate from 10.0% in ple, 15.3% of jobs in the Health Care industry are in
August 2013 to 8.7% in August 2014. office and administrative support occupations, 3.5% of
Over the next five years, Beacon Economics projects jobs are in management occupations, 3.0% of jobs are
employment growth to continue to remain elevated. in food preparation or serving-related jobs, and 2.5%
One reason our projection remains optimistic is that of jobs are in building and grounds cleaning and main-
there are plenty of unemployed workers available to tenance occupations, according to national statistics
businesses that are now looking to expand. The un- published by the U.S. Bureau of Labor Statistics.

Moving forward, more traditional means of consumer

Beacon Economics projects that total activity will help the Inland Empire continue to ex-
nonfarm employment will grow by 3.2% from pand its taxable sales base. Auto sales, in particular,
the second quarter of 2014 to the second have been providing the local economy with an added
quarter of 2015. layer of support, as pent-up demand for automobiles
has helped tax receipts from autos and transportation
grow by 11.2% in Riverside County and 6.5% in San
With major contributions from these key industries,
Bernardino County from the second quarter of 2013
Beacon Economics projects that total nonfarm em-
to the second quarter of 2014. San Bernardino County
ployment will grow by 3.2% from the second quarter
has seven new automobile dealers that opened their
of 2014 to the second quarter of 2015. In the following
doors between the first quarter of 2013 and the first
years, we expect that employment growth will follow
quarter of 2014, according to the California Employ-
at about the same clip but more likely average 3.4% an-
ment Development Department.
nual growth through 2019. By these projections, non-
farm employment will surpass the 1.5 million mark by
the end of 2019, adding more than 250,000 jobs over Hotel occupancy rates throughout the Inland
the course of five years. Empire picked up by 3.5 percentage points
from the first five months of 2013 to the same
period in 2014.
Business Activity
Tourism has also been strong throughout the region,
Many businesses in the Inland Empire have been ex- helping bring in money from outside of the area. And
panding their workforce and production levels over the number of tourists who stayed in local hotels con-
the last few years, helping taxable sales in the two- tinued to grow. Hotel occupancy rates throughout
county region rebound from the recession. Yet com- the Inland Empire picked up by 3.5 percentage points
pared to the 2001 to 2005 recovery, when taxable sales from the first five months of 2013 to the same period in
grew by 39% after inflation adjustments, taxable sales 2014, reaching a healthy 71.2%, according to PKF Con-
only grew by 23% from 2009 to 2013.4 sulting. Gross receipts from restaurants and hotels,
Through the second quarter of 2014, taxable sales which include local spending as well, grew by 5.5% in
growth appears to be decelerating. During the 2014 Riverside County and 7.2% in San Bernardino County
fiscal year, total taxable sales grew by 5.7%, a slower from the second quarter of 2013 to the second quarter
pace than in the 2013 fiscal year (8.3%) and the 2012 of 2014. In addition, the number of passengers flying
fiscal year (9.8%).5 A large portion of the previous through Ontario International Airport finally grew af-
growth is in part attributable to major construction ter years of decline.
projects, such as the Genesis Solar Energy Project by Overall, economic activity indicators are heading in
NextEra Energy Resources. These types of projects the right direction for the Inland Empire, and the
provided a boost to the local economy when it needed economy is poised for further growth. Beacon Eco-
it most, but they are now near completion. nomics projects taxable sales in the region to grow by
5.1% from the second quarter of 2014 to the second
4
Prior to adjustments for inflation, taxable sales from 2001 to quarter of 2015. Afterwards, with help from under-
2005 grew by 53%, while taxable sales from 2009 to 2013 grew by
34%.
lying growth in population counts throughout River-
5
These figures are not adjusted for inflation. side and San Bernardino Counties, taxable sales are

expected to grow from 6.5% to 7.5% annually through to further appreciate in the coming years. At the me-
2018. dian sales price for an existing single-family home,
a homebuyer in San Bernardino County would pay
Taxable Sales Forecast
Inland Empire, Q1-01 to Q4-19 $1,172 per month for housing costs, and a homebuyer
25 in Riverside County would pay $1,445 per month.6
Taxable Sales ($ Millions, SA)
20
In comparison, a homebuyer in Los Angeles County
would pay $2,347 per month for housing, and a home-
15
buyer in Orange County would pay $3,088 per month.
10 Relative to the median household income of non-
5 homeowners (households living in renter-occupied
units), a homebuyer in San Bernardino County could
0
Q1-01 Q1-04 Q1-07 Q1-10 Q1-13 Q1-16 Q1-19 expect 39% of their household income to go toward
Actual Forecast housing costs, and a homebuyer in Riverside County
Source: Forecast by Beacon Economics could expect 47% of their household income to go to-
ward housing costs. In contrast, homebuyers in Los
Angeles and Orange counties could expect to spend
74% and 76%, respectively, of their household income
Real Estate
on housing.
Home appreciation through the first half of 2014 con- Existing Home Prices and Sales Forecast
tinued to grow at a double-digit pace. The pace de- Inland Empire, Q1-01 to Q4-19
400,000
celerated from a year ago, when home prices were up 20,000
Median Prices ($, SA)

over 20% on a year-over-year basis. However, much of 300,000
15,000
Sales (SA)
the growth in 2013 was due to a change in the sales

200,000
mix—there was a large increase in the number of dis- 10,000
tressed properties on the market. More recently, the 5,000 100,000
share of distressed properties in the sales mix has pre-

0 0
cipitously declined. Q1-01 Q1-04 Q1-07 Q1-10 Q1-13 Q1-16 Q1-19
Sales Sales Forecast

Median Prices Median Price Forecast
At the median sales price for an existing Source: Forecast by Beacon Economics
single-family home, a homebuyer in San
Bernardino County would pay $1,172 per Home sales declined over the year. During the first
month for housing costs, and a homebuyer half of 2014, there were 25,100 existing single-family
in Riverside County would pay $1,445 per home sales, compared with 28,700 in the first half
month. of 2013. There were also 3,160 condominium sales in
the first half of 2014, slightly below the 3,390 condo-
A deceleration in price growth is usually a cause of minium sales in the first half of 2013. But the number
concern for investors, but that should not be the case of traditional sales (estimated by the number of exist-
for current homeowners in the Inland Empire. Afford-
6
ability remains low by historical standards, and home Taxes, insurance, and maintenance are estimated at 1.5% of
the home sales price per year. Interest rates are estimated above
prices are low when compared with prices in coastal the current 4.4% average, and a down payment of 20% is taken
communities. Beacon Economics projects home prices into account.

ing home sales less the number of foreclosures) shows heavily on the amount of construction permitting ob-
that sales activity is actually fairly normal, reflecting tained for new residential units. Furthermore, slack
the decline in available distressed properties—which in permitting dampens our forecasts for all economic
is a great sign for the stability of the housing market. indicators, as insufficient available housing units will
deter potential migrants. Nevertheless, by the end of
The tight housing supply remains one of the funda-
2014, we expect that a total of 8,800 housing units will
mental components underlying the improvement in
be permitted, for an increase over the 8,400 units per-
the local housing market. The Inland Empire has been
mitted in 2013, and we expect another 11,000 units to
experiencing a shortage of homes available for sale for
be permitted in 2015.
some time, which has driven prices up. Fortunately,
this lack of supply is beginning to incentivize builders
in the Inland Empire to become more active in the lo-
cal market. According to the California Homebuilding
Foundation, 4,300 residential permits have been is-
sued in the Inland Empire through the first six months
of 2014, a 8.1% year-to-date increase over the same
period last year. However, this is a far cry from the
pre-recession peak back in the fourth quarter of 2004,
when 13,300 units were permitted in a single three-
month period. Nevertheless, it does represent a no-
table increase in permitting activity since the reces-
sionary lows.
Residential Permit Forecast

Inland Empire, Q1-01 to Q4-19
15
Number of Units (000s, SA)
10
0
Q1-01 Q1-04 Q1-07 Q1-10 Q1-13 Q1-16 Q1-19
Actual Forecast
Source: Forecast by Beacon Economics
Overall, Beacon Economics projects the median price

for a single-family home in the Inland Empire to grow
by a healthy 7.9% from the second quarter of 2014 to
the second quarter of 2015. In the course of the next
five years, we project that home prices will grow at
a rate of 6.5% to 7.5% per year. Home sales, too, are
expected to pick up, with future growth depending

BEACON ECONOMICS
Employment
by Brian Vanderplas
Contents
Overview 28
Employment by Sector 29
City Level Labor Markets 31
Business Formation 32
Wages 33
Employment
Total nonfarm employment in the Inland Empire increased by 2.7% from August 2013 to August 2014,
matching the pace of growth in household employment.
Both high- and low-wage jobs increased over the past year, with the Professional, Scientific, and Techni-
cal Services sector increasing payrolls by 7.2% and the Leisure and Hospitality sector increasing payrolls
by 6.3%.
The unemployment rate in the Inland Empire dropped from 10.0% to 8.3% over the past year.
The number of businesses in the Inland Empire increased by 2.3% from 2012 to 2013.
Overview Local Labor Market Performance

Inland Empire, Jan-90 to Aug-14
Nonfarm Employment (000s, SA)

1,400 15
The employment recovery in the Inland Empire has
Unemployment (%, SA)

begun to hit its stride. From August 2013 to August 1,200 12
2014, total nonfarm employment in the Inland Em-

pire increased by 2.7%, building on the 4.4% gain from 1,000 9
August 2012 to August 2013, which was revised from

800 6
just 0.6% earlier this year. California’s Employment
Development Department (EDD) periodically updates 600 3
their employment estimates with more comprehen- Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
Total Nonfarm Unemployment Rate

sive data, which can result in significant shifts in the
Source: California Employment Devlopment Department
reported monthly employment figures. At our last
forecast conference in the Inland Empire, Beacon Eco-
The declining unemployment rate in the Inland Em-
nomics noted the likelihood of these revisions. More
pire is another bright spot for the region. From August
important, the Inland Empire is now outpacing the
2013 to August 2014, the unemployment rate declined
state overall (2.1%) in terms of job growth. Region-
1.7 percentage points, to 8.3%. Although this is still
ally the Inland Empire has been the shinning star over
higher than the unemployment rate in the state over-
the past year, with employment growth surpassing
all (7.4%), the gap closed from 1.1 percentage points
growth in San Diego (2.6%), Los Angeles (1.8%), and Or-
in August 2013 to 0.9 percentage points in August
ange County (1.0%). Still, despite the resurgence in job
2014. The decline in the unemployment rate was met
growth, employment levels in the region have a ways
with a 2.7% increase in household employment and a
to go before surpassing their pre-recession peak.
0.8% increase in the labor force in the region, both of
which outpaced increases in the state overall during
From August 2013 to August 2014, total the same period. Rising levels of household employ-
nonfarm employment in the Inland Empire ment and a growing labor force mean that the decline
increased by 2.7%, building on the 4.4% gain in the unemployment rate is being driven by residents
from August 2012 to August 2013. in the region finding work; it is not the result of dis-
couraged residents dropping out of the labor force.

Employment
Perhaps a more important takeaway from the house- in 2013, only slightly higher than the rate observed
hold survey is that household employment is match- in the state overall (5.2%). However, the unemploy-
ing the pace of growth in total nonfarm employment ment rate for Inland Empire residents without a bach-
in the Inland Empire. This is in contrast to what we elor’s degree remained above 10% in 2013. This gap
saw throughout most of the post-recession recov- highlights the importance of developing an educated
ery, when growth in household employment outpaced workforce. Gains in educational attainment will help
growth in total nonfarm employment. When growth lower the unemployment rate and drive up income in
in household employment exceeds the pace of growth the region.
in total nonfarm employment, it can mean that resi-
dents are being forced to look for jobs outside of the The unemployment rate for Inland Empire
area or that more residents are self-employed. That residents with a bachelor’s degree or higher
this gap has begun to close suggests that more local was just 5.5% in 2013.
residents are beginning to find work closer to home.
Total Nonfarm and Household Employment

Inland Empire, Jan-10 to Aug-14
Indexed Employment (Jan-10 = 100, SA)
112 Employment by Sector

108
At the industry level employment growth has been
104 broad based, with the majority of the region’s sectors
expanding their payrolls over the last year. Leading
100
the way has been the Leisure and Hospitality sector,
which increased payrolls by 6.3% (8,600 jobs) from Au-
96
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 gust 2013 to August 2014. The gains in the Leisure and
Total Nonfarm Total Private Hospitality sector can also be seen in hotel occupancy
Source: California Employment Devlopment Department
rates and average daily room rates at the region’s ho-
tels, which have increased by 4.3 percentage points
To get a better understanding of the commuting dy- and by 4.4% from June 2013 to June 2014, respectively.
namics in the Inland Empire, we can look at the Cen- What’s more, recent renovations to the Riverside Con-
sus Bureau’s American Community Survey. According vention Center expanded the center’s indoor event
to data compiled in 2013, more than 29.9% of area res- space by over 30%, which should boost growth in the
idents commuted to neighboring job centers, a slight hospitality sector in the region in the next few years.7
drop from the 30.3% of area residents who commuted
to neighboring job centers in 2012. While still rela- The Construction sector was another shining star for
tively high, the drop in the number of outbound com- the Inland Empire. In last year’s report, Beacon Eco-
muters echoes the resurgence in local employment nomics highlighted the lackluster performance in this
that is occurring in the Inland Empire for area resi- sector and noted that this was likely a blip in the data,
dents. given the underlying strength in other indicators for
construction activity. The March revisions from Cal-
To help sustain these trends, the region needs to con- ifornia’s EDD confirmed our assumption, with Con-
tinue to focus on improving educational outcomes. In- 7
“Riverside Convention Center to Reopen Early Spring
deed, the unemployment rate for Inland Empire resi- 2014,” Riverside Convention and Visitors Bureau, available at
dents with a bachelor’s degree or higher was just 5.5% http://www.riversidecvb.com/sites/default/files/Riverside%20Convention%20
1-13.pdf .

Employment
struction employment from August 2012 to August to Amazon’s new fulfillment center in Moreno Valley,
2013 being revised from an initial estimated decrease which shipped its first package in August this year.8
of 5.4% to a much-improved increase of 9.2%. This
year, the Inland Empire built on these revised gains
Inland Empire Employment (000s, SA)
from a year ago, increasing payrolls by another 4.1%
Aug-12 to Aug-12 to
from August 2013 to August 2014. Sector Aug-13
Aug-13 (%) Aug-13 (#)
Professional, Scientific, & Technical Services Total Nonfarm 1268.5 2.7% 33.0
Employment, Jan-12 to Aug-14 Educational Services 18.4 8.9% 1.5
Indexed Employment (Jan-10 = 100, SA)
115 Prof Sci and Tech 40.7 7.2% 2.7

Leisure and Hospitality 144.7 6.3% 8.6
110 Construction 72.4 4.1% 2.8
Health Care 173.8 3.5% 5.8
105 Transport,Warehouse,Util. 81.8 2.9% 2.3
Information 11.6 2.6% 0.3
100 Retail Trade 170.2 2.6% 4.3
Government 230.8 2.3% 5.1
95 Admin Support 89.4 1.4% 1.2
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Wholesale Trade 57.3 1.3% 0.7
Inland Empire California Management 8.9 0.9% 0.1
Source: California Employment Devlopment Department Financial Activities 42.5 0.8% 0.3
NR/Mining 1.2 -0.1% -0.0
Manufacturing 86.1 -0.7% -0.6
Other sectors also posted solid gains over the last year.
Other Services 38.6 -5.5% -2.3
From August 2013 to August 2013, the Educational
Source: California Employment Development Department
Services sector increased payrolls by 8.1%, adding
roughly 1,500 positions. Not far behind was the Profes- What’s more, Amazon is planning to build another ful-
sional, Scientific, and Technical Services sector, which fillment center in Redlands, which the company esti-
increased payrolls by 7.2% from August 2013 to August mates will employ more than 2,500 full-time employ-
2014, marking the fastest pace of growth for this sec- ees.9 The new fulfillment center, as well as the one
tor across the state over the period. The Health Care that came online in Moreno Valley in August, will not
sector also added jobs, increasing payrolls by 3.5% only have a positive impact on the logistics industry
from August 2013 to August 2014. The strong growth in the region but will also have a positive impact on a
in high-wage sectors like Professional, Scientific, and broad range of sectors in the Inland Empire.
Technical Services and Health Care, along with growth
in low-wage sectors like Leisure and Hospitality, high- Using IMPLAN, a software system and database devel-
lights how job growth is occurring over a broad range oped by MIG Inc. for input-output data analysis, we
of sectors, contrary to what is often being reported. can see that the 2,500 employees directly employed
by Amazon will help create another 941 jobs in the
The region’s prominent Logistics sector continued region, with 89.4% of the additional jobs supported
to make contributions to local employment growth.
From August 2013 to August 2014, the Transportation, 8
Debra Gruszecki, “Curtain Lifts at Amazon Fulfillment Center
Warehouse, and Utilities sector increased payrolls by in Moreno Valley,”The Press-Enterprise, August 26, 2014, available
2.9%, outpacing this sector’s growth in the state over- at http://www.pe.com/articles/-748895--.html.
9
Debra Gruszecki, “Amazon Expands Its Inland Im-
all (1.3%). A portion of the gains in the Transporta- pact,” The Press-Enterprise, August 15, 2014, available
tion, Warehouse, and Utilities sector can be attributed at http://www.pe.com/articles/amazon-698862-center-
redlands.html.

Employment
in industries outside the warehousing industry.10 The employment in several key markets in the Inland Em-
downstream jobs are supported by Amazon’s expen- pire. Indeed, employment levels in the City of River-
ditures in the local economy for the day-to-day op- side increased by 2.1% from July 2013 to July 2014, em-
erations of the facility and by Amazon’s employees, ployment levels in the City of Ontario increased by
who will be buying goods and services in the local 1.5% from June 2013 to June 2014, and employment
economy, an activity which in turn helps to support levels in the City of Corona increased by 4.0% from
jobs throughout the Inland Empire economy and in April 2013 to April 2014. The recent growth in these
industries outside the warehousing industry. In other cities indicates the recovery is spread throughout the
words, growth in Logistics benefits local industries Inland Empire, in similar fashion to the rising employ-
across the board. ment levels across the majority of industries.
Government employment also turned the corner this
year, with the majority of growth being driven by local The unemployment rate in Corona (5.4%)
governments. From August 2013 to August 2014, Local
and the City of Temecula (5.5%) were well
Governments increased their payrolls by 2.7%, adding
below rates in the state overall (6.3%) in 2013.
4,800 of the 5,100 jobs gained in the Government sec-
tor over the past year. The improvement in the under-
lying tax base for local municipalities has started to Unemployment Rate (%)
arrest the declines in Government employment. These
Location 2012 2013
declines had been offsetting private-sector employ-
ment growth, as the private sector began its recovery California 11.4 10.0
in the region much earlier. Riverside County 14.7 12.9
Despite the overall strength in the majority of sec- Corona 10.6 8.4
tors in the region, some sectors are lagging. For exam- Temecula 9.0 9.0
ple, the Manufacturing sector posted a decline in pay- Murrieta 10.9 11.6
rolls from a year ago, decreasing by 0.7% or roughly Riverside 14.9 12.8
600 positions. Still, Manufacturing did not decrease Moreno Valley 13.6 13.9
across the board: Food and Beverage Manufacturing
San Bernardino County 13.7 12.1
increased payrolls by 1.9%, and Fabricated Metal Prod-
uct Manufacturing increased payrolls by 0.8%. Other Ontario 11.7 11.1
industries seeing declines from a year ago include Rancho Cucamonga 11.7 11.6
Other Services (which dropped by 5.5%) and the Fi- Fontana 13.8 12.2
nance and Insurance industry (which fell by 1.3%). Victorville 18.2 12.7
San Bernardino 17.5 16.6
Source: U.S. Census Bureau,
City Level Labor Markets American Community Survey
Moreover, the unemployment rate has dropped in the
The solid employment growth across the Inland Em- majority of cities in the Inland Empire. According to
pire over the past year has led to improved levels of the Census Bureau’s American Community Survey, the
10
unemployment rate in Corona (8.4%) and the City of
The IMPLAN software/database contains specialized regional
economic statistics and can be used to measure the effect on a re- Temecula (9.0%) were well below rates in the state
gional/local economy of a given change in the economy’s activity. overall (10.0%) in 2013. Nonetheless, some cities in the

Employment
Inland Empire are continuing to face tough times. The Number of Establishments
unemployment rate in the City of San Bernardino re- Inland Empire, 1990 to 2013
105
mains stubbornly high at 16.6%; however, it’s impor-
tant to note this rate has dropped over 5 percentage 90
Establishments (000s)
points over the past two years, so the area is still keep-
75
ing pace with the labor market growth in the Inland
Empire in recent years. 60
45
Business Formation
30
1990 1995 2000 2005 2010 2015
Along with growing employment levels, business for-
mation in the Inland Empire turned the corner last
The region also saw new establishments increase
year. According to the Quarterly Census of Employ-
across a variety of firm sizes. According to the Califor-
ment and Wages (QCEW) produced by the Bureau of
nia EDD, firms with between 10 and 249 employees ac-
Labor Statistics, the number of businesses in the In-
counted for 50% of the jobs created in the Inland Em-
land Empire increased by 2.3% from 2012 to 2013, sur-
pire between the third quarter of 2012 and the third
passing 100,000 as of the first quarter of 2014. Busi-
quarter of 2013. Firms with fewer than 10 employees
ness formation in the Inland Empire significantly out-
were responsible for 26.2% of the new positions in the
paced that in the state overall, with the number of
region, whereas firms with more than 250 employees
businesses in California only increasing by 0.3% from
were responsible for the other 23.8% of new positions
2012 to 2013. More important, the Inland Empire ac-
added in the Inland Empire over the same period.
counted for roughly two-thirds of the increase in the
number of businesses in the state from 2012 to 2013, At the county level, both Riverside County (3.5%) and
while being home to just 7.4% of its total establish- San Bernardino County (1.2%) increased their estab-
ments. lishment base from 2012 to 2013. Most industries in-
creased their establishment base from 2012 to 2013
in the Inland Empire, with Trade, Transportation, and
The number of businesses in the Inland Utilities (3.0%) and Professional and Business Services
Empire increased by 2.3% from 2012 to 2013, (2.7%) posting the largest gains in the number of new
surpassing 100,000 as of the first quarter of firms. The establishment base for the Leisure and Hos-
2014. pitality sector (2.1%) and the Financial Activities sec-
tor (2.0%) also grew significantly from 2012 to 2013 in
the Inland Empire. The only declines were posted by
the Natural Resources and Mining sector (3.1%) and
the Information sector (6.2%), both of which had fewer
establishments in 2013 than they had locally in 2012.

Employment
Wages Workers in the Utilities industry saw the largest bump

in wages from 2012 to 2013, with average annual
Although not growing as rapidly as employment lev- wages rising by 5.6%. Increases in wages in the Whole-
els, wages have also been on the rise in the Inland Em- sale Trade industry (4.3%) and the Professional, Scien-
pire. Indeed, the average annual wage across all sec- tific, and Technical Services industry (4.2%) also out-
tors grew by 0.6% in the Inland Empire from 2012 to paced the rate of growth for the region overall. De-
2013. Wages grew at a higher rate in Riverside County spite the overall strength in the majority of sectors in
(1.1%) than in San Bernardino County (0.2%); however, the region, annual average wages in several sectors
wages in San Bernardino County remain higher than declined from 2012 to 2013. The sectors hardest hit
wages in Riverside County. Wage growth in the state were Other Services (which saw wages drop by 4.1%)
overall (0.6%) matched growth in the Inland Empire. and Management (which slipped by 2.5%).
But growth in the Inland Empire outpaced growth in Looking at the growth in employment levels from Au-
neighboring Los Angeles and Orange County, where gust 2013 to August 2014, we can see that some of the
wages contracted last year by 1.0% and 0.4%, respec- fastest-growing sectors in the region are among those
tively. Yet average annual wages in the Inland Empire with higher earnings. As noted, this means that the
($41,314) remain lower than wages in the state overall region is creating high-wage jobs in addition to creat-
($57,121). ing jobs in predominantly lower-skilled industries like
Average Annual Wage by Industry Leisure and Hospitality. Indeed, 56% of the jobs added
Year-Over- from August 2013 to August 2014 were in industries
Industry 2013 ($)
Year Chg. (%) that had annual average wages over $40,000 in 2013.
Utilities 88,559 5.6
Overall, our outlook for the Inland Empire labor mar-
Wholesale Trade 52,135 4.3
Prof., Sci., & Tech Svcs. 54,438 4.2 ket remains bright. The majority of industries are con-
Finance & Insurance 57,887 3.2 tinuing to add to their payrolls, new businesses are
Information 54,230 2.0 springing up in the area, and wages are increasing
Mining 69,390 1.8 across a broad range of industries.
Heath Care 50,924 1.8
Local Government 50,634 1.6
Real Estate 39,037 1.2
Agriculture 24,988 1.0
Manufacturing 48,492 0.9
Retail Trade 28,657 0.2
Educational Services 38,458 -0.1
Construction 49,908 -0.6
Logistics 41,336 -1.0
Arts & Entertainment 23,269 -1.1
Admin. & Support Svcs. 27,394 -1.5
Accomodation & Food 16,986 -1.5
Management 67,439 -2.5
Other Services 20,962 -4.1
All Industries 40,447 0.6
Riverside 39,529 1.1
San Bernardino 41,315 0.2

BEACON ECONOMICS
Business Activity
by Dustin Schrader
Contents
Introduction 36
Economic Output in the Inland Empire Out-
paces the State 36
Consumer and Business Spending Bolstered by
Auto Sales and Energy Projects 38
Economic Growth Encourages New Infrastruc-
ture Projects across the Region 40
Ports of Long Beach and Los Angeles Show
Growth despite Recent Concerns 41
Airport Traffic and Hotel Revenue Growth
Show the Strength of Inland Empire Tourism 42
Charts and Tables 44
Business Activity
From 2012 to 2013, real gross domestic product in the Inland Empire increased by 2.8%, compared with
1.2% in Los Angeles County and 2.0% statewide.
With employment increasing throughout the Inland Empire and with economic growth outpacing the
state average, the newly created jobs and improved business revenues are pushing the region’s consumer
and business spending upward.
An increase in tax revenues has pushed local governments to consider improving infrastructure, supple-
menting the work that the State of California is doing to alleviate overstressed traffic areas.
The Inland Empire hospitality sector is experiencing strong growth, with hotel revenues and occupancy
continuing to climb.
Introduction Economic Output in the Inland Empire

Outpaces the State
Beacon Economics’ optimism about the Inland Em-
pire economy over the past two years has come to Total economic activity, as measured by regional gross
fruition. The economy is growing, and business activ- domestic product (GDP), has increased more quickly
ity is thriving. Growth in real gross domestic prod- in the Inland Empire than in the Los Angeles MSA
uct for the Inland Empire outpaced that of Los An- or the State of California overall. From 2012 to 2013,
geles County and the state overall. Consumer spend- real gross domestic product in the Inland Empire in-
ing increased more quickly over the past year than creased by 2.8%, compared with 1.2% in Los Ange-
in any other region in Southern California, driven by les County and 2.0% statewide. Industries related to
auto sales and construction. Infrastructure projects logistics show some of the strongest growth. Whole-
already underway and those being proposed are en- sale Trade GDP grew more rapidly in the Inland Em-
couraging for future growth in the region. With strong pire (12.9%) than in the state overall (3.2%). Likewise,
economic growth in the Inland Empire and other re- Transportation and Warehousing GDP increased 8.1%,
gions, business and leisure travel to the area is picking compared with 2.3% statewide. These sectors should
up, to the benefit of the Inland Empire hotel industry. continue to flourish throughout 2014 due to increased
Meanwhile, port activity continues to increase, which consumer and business spending and growing trade
bodes well for the region’s logistics industry moving activity, as detailed below.
forward. All signs are positive for the region’s busi-
nesses. The Inland Empire is well on its way to having As shown in the real estate chapters of this book,
one of the best years of economic growth in several residential and commercial construction continue to
years. ramp up. Real Estate, the largest private industry of
the Inland Empire economy, grew by 5.8% from 2012
to 2013, while construction increased 5.3% during that
time.

Business Activity
GDP by Industry
Riv.-San Bernardino Riv.-San Bernardino Riv.-San Bernardino Share of State of California,
Industry
GDP, 2012 ($ bil) GDP, 2013 ($ bil) 1-Year Chg (%) GDP Growth, (%) 1-Year Chg (%)
All Industries 115.5 118.7 2.8 100.0 2.0
Real Estate and Rental and Leasing 17.4 18.4 5.8 31.8 2.3
Retail Trade 10.5 10.5 0.1 0.2 1.0
Manufacturing 9.7 9.6 -0.9 -2.8 2.6
Durable Goods 5.6 5.4 -3.8 -0.2
Nondurable Goods 4.1 4.2 2.7 6.3
Health Care and Social Assistance 9.0 9.5 5.1 14.4 2.1
Wholesale Trade 7.0 7.9 12.9 28.2 3.2
Construction 6.0 6.3 5.3 10.0 3.4
Transportation and Warehousing 5.7 6.2 8.1 14.5 2.3
Administrative and Waste Management Services 4.5 4.6 0.6 0.8 1.3
Professional, Scientific, and Technical Services 3.8 4.0 3.8 4.5 -1.3
Accommodation and Food Services 3.8 3.8 -1.2 -1.4 2.7
Other Services, Except Government 3.5 3.3 -3.9 -4.2 -0.8
Finance and Insurance 3.0 3.1 5.6 5.2 1.3
Information 2.1 2.4 12.2 8.1 9.4
Utilities 2.1 2.2 2.4 1.6 6.3
Arts, Entertainment, and Recreation 1.0 1.0 2.0 0.6 1.4
Management 0.8 0.9 6.8 1.8 14.9
Agriculture 0.7 0.8 6.4 1.5 15.2
Educational Services 0.8 0.8 -6.9 -1.8 -1.0
Mining 0.8 0.6 -22.0 -5.6 -26.6
Government 23.1 22.9 -0.9 -6.5 -0.9
Source: U.S. Bureau of Economic Analysis
Gross Domestic Product Empire’s logistics industry, the Inland Empire Eco-
Regional and Statewide, 2001 to 2013 nomic Partnership has been working to draw tech
130
manufacturing to the region.11 Tech manufacturing
would likely provide a long-term boost to regional
Index = 100 in 2001
120
economic activity because of the strength of the tech
110
sector in California, in addition to providing jobs for
the region’s large number of low-skilled workers.
100 Manufacturing GDP will likely show growth in 2014,
01
03
05
07
09
11
13
but Inland Empire purchasing managers suggest

20
20
20
20
20
20
20
Riverside-San Bernardino MSA Los Angeles MSA growth could be low. The Inland Empire Purchasing
California
Source: U.S. Bureau of Economic Analysis

Managers Index (PMI) from Cal State San Bernardino’s
Institute of Applied Research stood at 50.9 in August. A
Manufacturing in the Inland Empire is one of the few PMI above 50 represents manufacturing growth, and
industries where growth remains sluggish. Manufac- August was the fifth straight month in which the PMI
turing GDP statewide increased by 2.6% from 2012 stayed above 50. However, growth is slowing—the PMI
to 2013, but it decreased by 0.9% in the Inland Em- in July was 54.8. The Institute’s manufacturing em-
pire. Within the larger manufacturing industry, non- ployment index decreased significantly from July to
durable goods manufacturing (such as food products)
increased 2.7% in that time, but durable goods man-
ufacturing (such as automobiles and metals) fell by
3.8%. Hoping to build a strong, lasting durable goods 11
Neil Nisperos, “Inland Empire Logistics Sector Poised for
manufacturing base that will also bolster the Inland Growth with Cargo Increases,” Inland Valley Daily Bulletin, Septem-
ber 11, 2014.

Business Activity
August, from 60.0 to 45.5, suggesting possible labor Taxable Sales by City
Q2-2013 1-Year 2-Year
cutbacks.12 City
($ bil) Chg (%) Chg (%)
Manufacturing in the Inland Empire may be improv- Apple Valley 0.13 6.1 8.3
ing, but it remains to be seen whether it will catch up Cathedral City 0.19 1.8 12.4
Chino 0.47 5.9 18.1
to growth statewide. The implementation of a state Chino Hills 0.17 7.9 8.7
sales and use tax exemption for manufacturing and Coachella 0.09 9.3 13.9
Corona 0.82 4.9 15.8
research and development property investments will Fontana 0.71 8.6 14.9
help. The exemption went into effect in July and will Hemet 0.25 10.6 14.4
be in place until July 2022. Its effects on the Inland Indio 0.23 9.6 21.0
Moreno Valley 0.38 12.7 19.4
Empire manufacturing industry should begin to sur- Murrieta 0.31 7.6 18.1
face gradually over time, given the abundance of af- Ontario 1.60 6.1 12.2
fordable industrial property, as demonstrated in the Palm Springs 0.28 12.6 15.4
Rancho Cucamonga 0.60 7.3 3.5
Commercial Real Estate chapter of this book, helping Rialto 0.27 15.6 23.1
to draw new manufacturing to the region. Riverside 1.28 11.6 20.3
San Bernardino 0.69 9.2 17.2
Temecula 0.70 7.3 10.3
Upland 0.28 7.3 21.8
Consumer and Business Spending Source: California Board of Equalization
Bolstered by Auto Sales and Energy

Projects second quarter of 2013 to the second quarter of 2014,
a larger increase than observed in San Diego County
(6.4%), Los Angeles County (4.0%), Orange County
Taxable Sales Revenues (2.8%), and the state overall (3.9%). Taxable sales in the
Select Counties and California, Q2-09 to Q2-14
150 Inland Empire have climbed above their pre-recession
peak in the second quarter of 2007 by 4.5%. The re-
Index = 100 in Q2-09
140
130 gion’s spending is now at a higher level than ever in

120 terms of total dollars.
110
Taxable sales increased significantly in a number of
100
major cities in the Inland Empire. Taxable sales in On-
09
10
11
12
13
14
tario, the city with the largest total taxable spending

2-
2-
2-
2-
2-
2-
Q
Q
Riverside-San Bernardino MSA Orange County in the region, increased 6.1% from the second quarter
Los Angeles County San Diego MSA
California of 2013 to the second quarter of 2014. Riverside, with
Source: California Board of Equalization
taxable spending not far behind that of Ontario, expe-
rienced an increase of 11.6% in that time. Growth was
With employment increasing throughout the Inland also substantial in Fontana (8.6%) and San Bernardino
Empire and with economic growth outpacing the state (9.2%).
average, the newly created jobs and improved busi-
ness revenues are pushing the region’s consumer and Indeed, taxable sales increased in every city in the In-
business spending upward. Taxable sales in Riverside land Empire by 1.8% or more from 2012 to 2013. In
and San Bernardino Counties increased 6.6% from the only three cities taxable sales growth was less than
10% over the past two years, with just two cities facing
12
“IAR’s Inland Empire Report on Business,” Cal State Univer- less than 5% growth in taxable sales within the past
sity San Bernardino, Institute of Applied Research, August 2014.

Business Activity
Taxable Receipts by Sector

Riverside Cty, Riverside Cty, San Bernardino Cty, San Bernardino Cty,
Category
Q2-2014 ($ bil) 1-Year Chg (%) Q2-2014 ($ bil) 1-Year Chg (%)
Autos and Transportation 13.2 11.2 12.7 6.6
Building and Construction 8.1 9.2 6.7 10.2
Business and Industry 10.0 -0.7 14.1 -2.8
Food and Drugs 4.5 7.2 3.7 8.2
Fuel and Service Stations 10.4 5.8 11.6 6.2
General Consumer Goods 17.9 5.6 16.5 6.2
Restaurants and Hotels 8.6 5.5 7.2 6.6
Total 80.8 6.9 81.0 5.0
Source: The HdL Companies
year. This level of growth in taxable sales is a good separate from communities and to encourage building
sign of healthy business activity. Firms will turn much on industrial and commercial lots, as well as to con-
of this growth in spending into investments in real es- trol the spread of dust, serve as key compromises to
tate, renovations, expansions, or labor. balance these interests.13
Taxable receipts data from HdL Companies show that BrightSource Energy plans to commence building the
automobile and transportation spending continues to Palen solar energy project in Riverside County soon.
drive the growth in overall spending. Across both In mid-September, members of the California En-
Riverside and San Bernardino Counties, automobile ergy Commission approved construction of one of the
and transportation spending increased 8.8% from the project’s two 250-megawatt solar towers. The project
second quarter of 2013 to the second quarter of 2014, will use flat mirrors to focus sunlight on a central
with 11.2% growth in Riverside County alone. Build- tower that will convert thermal heat into storable en-
ing and construction spending has outpaced any other ergy. The commission has yet to approve the project’s
category of spending, with 10.4% growth in River- second solar tower, due to concerns primarily about
side and San Bernardino Counties combined. The re- the project’s risks to migratory birds. However, the
bound in commercial and residential real estate has commissioners lauded the project’s low net carbon
provided a big boost to construction spending in the emissions and noted that it would support hundreds of
region, with permitting and new construction show- construction jobs, with an average workforce of more
ing no sign of slipping. than 600.14 Whether the downsized, 250-megawatt,
single-tower plans or the 500-megawatt, two-tower
With the Inland Empire continuing to build its repu-
plans are implemented, the project will unquestion-
tation as a hub for solar energy, large-scale projects
ably generate a substantial amount of new construc-
should bolster commercial and industrial construc-
tion activity in the Inland Empire.
tion in the region. San Bernardino lifted its mora-
torium on solar energy projects in late 2013, taking Fuel and service stations spending increased a total of
an important step to improve the county’s economic 6.3% in Riverside and San Bernardino Counties, sup-
growth, even as some residents continue to show con- ported by gas prices that are expected to remain low
cern regarding the aesthetic and environmental im-
pact of solar energy facilities. The regulations that 13
Janet Zimmerman, “Solar Development Moratorium to End,”
county supervisors imposed on solar energy projects The Press-Enterprise, December 3, 2013.
14
Sammy Roth, “Palen Solar Project Approval Banked on Possi-
in December, such as measures to keep the projects ble Storage,” The Desert Sun, September 17, 2014.

Business Activity
heading into fall 2014 and by the steady growth of au- increased 3.8% heading westbound and 3.5% heading
tomobile spending in the region. Gas prices at the end eastbound. Traffic remained mostly unchanged along
of summer were at their lowest level since February, SR-60, I-15, and I-215 within the Inland Empire.
with wholesale gas prices low enough that retail prices
That is not to say that expansions are not needed along
could decrease even more in the fall.15
some of these highways. Expansion of the I-15/I-215
Employment growth and an increase in business and interchange along Cajon Pass should help to alleviate
tourist travel put upward pressure on spending at severe traffic bottlenecks. The California Transporta-
restaurants and hotels (up 6.0% year over year) and on tion Commission has contributed $53.7 million of the
general consumer goods (up 5.8% year over year). This $324 million final cost of the project.16 Expansion of
should mean even more job growth in labor-intensive SR-91 between Corona and Riverside is crucial to re-
industries like leisure and hospitality and retail goods. lieving gridlock. By 2017, the $1.4 billion expansion
As economic activity continues to grow in the com- project is expected to be complete.17
ing year, we expect to see increases in hiring, both in
these lower-wage sectors (as businesses keep up with A new daily passenger rail line could be a
growing demand) and also in high-wage sectors (as de- boon for household employment growth in
mand for business services increases in response to the region.
sales growth).
To keep up with traffic growth in the long term, some

Economic Growth Encourages New Inland Empire community leaders are also consider-
ing expanding passenger rail in the region. The River-
Infrastructure Projects across the
side County Transportation Commission is seeking
Region federal funding for a study on the potential for daily
passenger rail service between Los Angeles and Indio
The economy of the Inland Empire is strong and with stops in Riverside and the San Gorgonio Pass. At
growing. Rising home values and healthy consumer present, Amtrak runs only three trains a week from
and business spending have helped to bolster the Los Angeles to the Coachella Valley.18 A new daily pas-
two primary sources of government funding: sales senger rail line could be a boon for household employ-
and property taxes. Strong growth in assessed valu- ment growth in the region.
ation—roughly 7% in Riverside County for the current
The County of Riverside recently reached a deal with
fiscal year—has led to bigger budgets in 2014. This
Temecula Valley Wine Country to allow the agricul-
increase in revenues has pushed local governments
tural district to keep 25% of county sales tax col-
to consider improving infrastructure, supplementing
lections in exchange for purchasing signs, roads and
the work that the State of California is doing to alle-
roundabouts, and water and sewer lines. The district
viate overstressed traffic areas. Traffic has increased,
will retain roughly $200,000 per year for infrastruc-
considerably in some cases, on some stretches of high-
16
way in the Inland Empire in recent years. From 2012 Melissa Pinion-Whitt and Ryan Carter, “$53.7 Million Will Go
to Widening 15/25 Freeway Interchange in Devore,” |emphInland
to 2013, traffic on SR-210 within the Inland Empire in-
Valley Daily Bulletin, December 6, 2012.
creased 82.2% heading westbound and 79.0% heading 17
“SR-91 Project,” Riverside County Transportation Commis-
eastbound. Traffic on I-10 within the Inland Empire sion, available at http://rctc.org/projects/state-route-91/sr-91-
corridor-improvement-project.
15 18
“Inland Empire Gas Price Drops to Lowest Amount Since Jeff Horseman, “Study to Weigh Daily Rail Service Linking
Feb.,” City News Service, September 20, 2014. L.A., Coachella Valley,” The Press-Enterprise, September 10, 2014.

Business Activity
ture upgrades. The plan is similar to a late-2013 agree- seen what impact that emergency will have on trade
ment to allow the Cabazon factory outlets to retain and logistics activity for the month.20 A brief pause
25% of county sales tax on revenues generated from in operations may do little to turn the tide of growth
the expansion of the factory outlets in exchange for in port activity for the season. A five-day, 120-worker
public safety investments in Palm Springs.19 trucker strike at the ports in July does not appear to
have had a noticeable impact on port activity.21
In addition to encouraging these large-scale infras-
tructure projects, the City of Riverside has been work-
ing to provide web infrastructure citywide. The City Overall trade activity is growing, which
of Riverside has invested in fiber optic and free Wi-Fi should lead to more activity in the Inland
networks in different parts of the city, while support- Empire logistics industry in the months
ing tech incubators and offering free training, com- ahead.
puters, and software for low-income families. The City
of Riverside was named the Intelligent Community At the same time, the possibility of a dockworker
of the Year in 2012. Tech and transportation infras- strike at the ports after work contracts expired on July
tructure investments are essential to help the Inland 1 is believed to have boosted cargo activity to atypi-
Empire compete for business and tourism in the long cal levels in June.22 Data is not yet available for late
term. summer, so it is difficult to know whether port activity
slowed in the following months. Year-to-date growth
in August and September could be slower than data
Ports of Long Beach and Los Angeles from January through July would predict.
Show Growth despite Recent Concerns Total dollar value of exports out of Ontario Interna-
tional Airport (ONT) increased 3.4% from January–July
Activity at the ports of Long Beach and Los Angeles is 2013 to January–July 2014—a promising sign for cargo
growing, which should mean more trade traffic mov- traffic at the struggling airport moving forward. How-
ing through warehouses and distribution centers in ever, that growth is slower than at Los Angeles In-
the Inland Empire. The total value of exports for 2014 ternational Airport (9.4%) during the same period.
year to date (January to July) is 1.9% higher than in Furthermore, it follows a very difficult year for air-
the same period of 2013, and only slightly behind the port cargo traffic in 2013. From 2012 to 2013 (Jan-
pace of 2.7% growth observed from January–July 2012 uary–December), total dollar value of exports de-
to January–July 2013. Growth was concentrated at the creased 12.8% at ONT, even as it increased 8.3% at LAX.
Port of Los Angeles (3.5%), while export values at the Yet, although airport cargo traffic at ONT remains
Port of Long Beach remained mostly flat (0.2%). This somewhat sluggish, overall trade activity is growing,
is a reversal from the previous year, in which export which should lead to more activity in the Inland Em-
values increased 11.3% at the Port of Long Beach from pire logistics industry in the months ahead.
January–July 2012 to January–July 2013 but decreased
4.5% at the Port of Los Angeles during the same period.
A fire emergency impaired operations at the Port of 20
“Port of Los Angeles Fire: Terminals Resume Full Operations,”
Los Angeles in mid-September, but it remains to be KPCC, September 23, 2014.
21
Andrew Khouri, “Five-Day Trucker Strike at Los Angeles and
Long Beach Ports Ends,” Los Angeles Times, July 12, 2014.
19 22
David Downey, “Supervisors Act on Wine Country Sales Tax Brian Watt, “Dockworkers and Shipping Companies Reach
Plan,” The Press-Enterprise, September 10, 2014. Tentative Deal on Health Care,” KPCC, August 27, 2014.

Business Activity
Airport Traffic and Hotel Revenue Palm Springs International Airport (PSP) has shown
Growth Show the Strength of Inland a very strong increase in activity between 2013 and
2014. From January–June 2013 to January–June 2014,
Empire Tourism total passenger traffic increased 9.4%, compared with
2.4% growth from January–June 2012 to January–June
Economic growth has provided a steady boost to busi- 2013. Although PSP has a smaller base of total pas-
ness and tourist travel to the Inland Empire, with senger traffic than ONT, the airport’s growth over
solid growth at airports and hotels in 2014. After sev- the past two years suggests that the Coachella Val-
eral years of gradual decline in passenger traffic at ley has become a prime destination for tourist traffic
ONT, passenger traffic for January–June 2014 was 5.0% to Southern California. The growth of events such as
higher than for January–June 2013. In comparison, the Coachella Valley Music and Arts Festival no doubt
passenger traffic rose by 6.3% at LAX and by 4.9% at plays a prominent role. New flights scheduled for the
airports statewide. At the same time, passenger traf- winter season from Vancouver on Air Canada Rouge
fic at ONT was still 3.9% lower in January–June 2014 will also contribute to ongoing tourism growth.24
than in January–June 2012, while passenger traffic in-
The Inland Empire hospitality sector is experiencing
creased 10.6% at LAX and 7.0% at airports statewide
strong growth, with hotel revenues and occupancy
during that time.
continuing to climb. According to data from PKF
Total Airport Passenger Traffic Consulting, from January–May 2013 to January–May
ONT, LAX, and California Totals, June 2009 to June 2014
140
2014, revPAR (revenue per available hotel room) in-
creased 8.7% in the Inland Empire overall, with espe-
cially strong growth in the wine country in Temecula
Passengers (SA)
120
(11.5%) and in Riverside/Corona (9.9%).
100
Revenue Per Available Room
Select Regions, April 2009 to April 2014
80 110
Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 100

RevPAR ($, SA)
Ontario International Los Angeles International 90

California Totals 80
Source: Visit California
70
60
Ontario city leaders are optimistic that the city could 50
40
reach a deal by the end of 2014 to acquire control of Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14
ONT from Los Angeles World Airports. The plan has Riverside-San Bernardino Los Angeles
gained the support of Los Angeles Mayor Eric Garcetti San Diego Anaheim-Santa Ana
as well as Los Angeles County and Riverside County su-
pervisors.23 Those parties believe that local oversight
The revPAR growth reflects the combined impact of an
could increase departures out of ONT and boost lag-
increase in room occupancy and an increase in hotel
ging passenger traffic over time.
room daily rates. Occupancy increased 3.5 percentage
points throughout the region, to 71.2%, while the av-
23 24
Jeff Horseman, “Airport Deal Could Be Near, Councilman Skip Descant, “Air Canada Rouge to Fly out of Palm Springs,”
Says,” The Press-Enterprise, September 17, 2014. The Desert Sun, September 17, 2014.

Business Activity
Hotel Statistics by Subregion

ADR, 2013 - 2014 Occupancy, 2013 - 2014 RevPAR, 2013 - 2014
Location
2014 ($) Chg (%) 2014 ($) Chg (%) 2014 ($) Chg (%)
Ontario 93.18 2.8 71.7 3.9 66.80 8.6
Riverside/Corona 96.57 5.2 69.1 3.0 66.71 9.9
San Bernardino 77.98 2.0 71.4 2.5 55.67 5.7
Temecula 112.55 3.0 74.6 5.8 83.91 11.5
Regional Average 92.41 3.4 71.2 3.5 65.76 8.7
Source: PKF Consulting
erage daily hotel room rate increased 3.4%, to $92.41. Tourist demand is encouraging new, and sometimes
Temecula led the way with a 5.8 percentage point in- controversial, hotel and resort development. Seeking
crease in room occupancy, at 74.6%. to build a robust new tourist destination in downtown
Palm Springs, the Agua Caliente Band of Cahuilla In-
Medium-sized hotels (100–199 rooms) in the Inland
dians demolished the Palm Springs Spa Resort Casino.
Empire showed the biggest growth. Among those ho-
Local preservationists criticized the move for elimi-
tels, revPAR increased 11.0% from January–May 2013
nating a well-known example of mid-century archi-
to January–May 2014. Hotels of all sizes are growing
tecture. However, the tribe has plans to preserve the
in 2014: revPAR increased 6.6% at hotels with fewer
site’s natural spring as it builds a new downtown
than 100 rooms and 5.3% at hotels with 200 or more
hotspot in place of the resort.27 As the Inland Em-
rooms. Hotels with 200 or more rooms showed the
pire seeks to capitalize on growing tourist demand
lowest growth in occupancy, increasing 2.9 percent-
through revitalization projects such as these, devel-
age points to 63.8%, while hotels with 100–199 rooms
opers may continue to brush up against local groups
showed the strongest bump in occupancy, increasing
seeking to preserve the landmarks that originally
by 4.0 percentage points to 72.9%.
drew tourism to the region.
The growth in tourism has led to big increases in
At the same time, local tourism authorities seek to
transient occupancy taxes (TOT) for the region. Ac-
continue to build the region’s reputation as a gate-
cording to The Desert Sun, TOT in the Coachella Val-
way to Southern California and attractions in Los An-
ley increased 9.9% from fiscal year 2013 to fiscal year
geles, San Diego, Orange County, and Las Vegas. Al-
2014, to $55.9 million. TOT growth was especially pro-
though the California Welcome Center struggled in
nounced in Palm Springs, at 12.9%. As Palm Springs
San Bernardino and was forced to close in 2013, a new
Mayor Steve Pougnet notes, the city TOT has been up
California Welcome Center in Ontario will help market
double-digits for several years.25 Tourism is a driving
the region to tourists in California and elsewhere. The
force for the Coachella Valley economy, generating an
vibrant growth in business activity throughout the In-
estimated $5.8 billion in total business sales, according
land Empire will help it to meet its goals by drawing
to a report by the Greater Palm Springs Convention
increasing numbers of businesses and travelers to the
and Visitors Bureau.26
region in the months ahead.
25
Skip Descant, “Coachella Valley Collects $55.9 Million in Hotel
Bed Taxes,” The Desert Sun, September 1, 2014.
26
“2013 Report on the Economic Impact of Tourism,” Greater
Palm Springs Convention and Visitors Bureau, available at
27
http://www.visitgreaterpalmsprings.com/partners/2013- Jessica Gelt, “Desert Dust-Up over Demolition of Tribe’s Spa
economic-impact-report. Resort in Palm Springs,” Los Angeles Times, September 7, 2014.

Business Activity
Charts and Tables
Average Daily Rate Occupancy Rate

Selected Regions, April 2009 to April 2014 Select Regions, April 2009 to April 2014
160 80
Average Daily Rate ($, SA)
Occupancy Rate (%, SA)

140
70
120
60
100
80 50
Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14
Riverside-San Bernardino Los Angeles Riverside-San Bernardino Los Angeles

San Diego Anaheim-Santa Ana San Diego Anaheim-Santa Ana
Source: Visit California Source: Visit California
Airport Activity (Total Passenger Traffic)

Airport Jan-Jun Jan-Jun 2013 Jan-Jun 2014 1-Yr 2-Yr
2012 2013 2014 Chg (%) Chg (%)
Ontario International 2,147,849 1,965,816 2,065,042 5.0 -3.9
Los Angeles International 31,822,442 33,111,516 35,204,864 6.3 10.6
California Total 86,134,352 87,911,352 92,198,112 4.9 7.0
Port of Los Angeles Exports

Jan-Jul Jan-Jul YTD 2013-
2012 ($) 2013 ($)
2013 ($) 2014 ($) YTD 2014 Chg (%)
Inloaded Containers 4,092,621 3,976,692 2,239,338 2,433,935 8.7
Outloaded Containers 2,043,076 1,921,069 1,091,200 1,152,226 5.6
Total Full Containers 6,135,698 5,897,761 3,330,538 3,586,161 7.7
Source: WISERTrade
Port of Long Beach Exports

Jan-Jul Jan-Jul YTD 2013-
2012 ($) 2013 ($)
2013 ($) 2014 ($) YTD 2014 Chg (%)
Inloaded Containers 3,062,290 3,455,325 1,933,184 1,996,338 3.3
Outloaded Containers 1,540,188 1,704,930 974,579 977,226 0.3
Total Full Containers 6,045,662 6,730,573 3,784,623 3,835,815 1.4
Source: WISERTrade

Business Activity
Gross Domestic Product Taxable Sales Revenues

Regional and Statewide, 2001 to 2013 Select Counties and California, Q2-09 to Q2-14
Select Counties ($ billions, SA)

1,100 2,100 40
150
California ($ billions, SA)

California GDP ($ billions, SA)
1,000 2,000
Regional GDP ($ billions, SA)
900 1,900
125
800 1,800 30
700 1,700
100
600 1,600
500 1,500 20
400 1,400
75
300 1,300
200 1,200
10 50
100 1,100
09
10
11
12
13
14
2-
2-
2-
2-
2-
2-
Q
0 1,000
Q
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Riverside-San Bernardino MSA Orange County
Riverside-San Bern. MSA Los Angeles-Long Beach MSA Los Angeles County San Diego MSA
California California
Source: U.S. Bureau of Economic Analysis Source: California Board of Equalization
San Bernardino Taxable Receipts

Autos and Building and Business and Food and Fuel and General Restaurants
Quarter Total
Transportation Construction Industry Drugs Service Stations Consumer Goods and Hotels
Q2-13 11,952,821 6,046,456 14,537,025 3,446,645 10,914,617 15,578,456 6,748,408 77,224,219
Q2-14 12,738,895 6,662,377 14,132,397 3,729,177 11,596,670 16,539,822 7,191,986 81,047,804
Riverside Taxable Receipts

Autos and Building and Business and Food and Fuel and General Restaurants
Quarter Total
Transportation Construction Industry Drugs Service Stations Consumer Goods and Hotels
Q2-13 11,839,343 7,403,024 10,042,565 4,238,344 9,791,480 16,908,268 8,188,280 75,594,602
Q2-14 13,168,096 8,082,901 9,975,536 4,543,829 10,355,426 17,851,191 8,642,189 80,780,497

Business Activity

 
Residential Real Estate

by Alan Hooper
Contents
Strong Demand, Tight Supply 48
Single-Family Housing Market 49
Distressed Properties 51
New Homes and Construction 52
Multifamily Housing Market 53
The residential housing market in the Inland Empire is characterized by strong demand and tight supply,
with steep price increases and declining sales for existing single-family homes, new homes, and condo-
miniums.
The continued easing of lending standards has boosted demand for housing, but declines in distressed
property sales have led to a tight housing supply. Foreclosures dropped 23.4% in the Inland Empire from
the first half of 2013 to the first half of 2014.
The housing market will normalize at a faster rate in Riverside County than in San Bernardino County.
Construction permits for single-family homes grew by 14.2% in Riverside year-over-year, but fell by 3.6%
in San Bernardino. Additionally, the average value of the permits issued in Riverside County increased by
8.6% during this time, a much slower rate than the current rate of price appreciation.
With rapidly rising prices and declining sales, the multifamily housing market mirrored the single-family
market over the past year. However, the supply constraints in the multifamily market are not as perva-
sive, as sales increased in a number of cities throughout the region.
Last year’s trends in the rental market have carried into 2014. Vacancy rates fell 1.1 percentage points,
to 2.5%, and are among the lowest in Southern California. Meanwhile, rents continued to grow steadily
from the second quarter of 2013 to the second quarter of this year, increasing by 2.1%.
Strong Demand, Tight Supply Nonetheless, the Inland Empire remains one of the
hottest housing markets in the nation, owing to a
boost in housing demand and persistent supply con-
Res. Real Estate Prices and Traditional Sales
Inland Empire, Q1-95 to Q2-14 straints.
40 400
Traditional Sales (000s, SA)
Housing demand has been aided by the continued re-

Median Price ($000s, SA)
30 laxation of lending standards over the past year. For

300
example, the average FICO score accepted for FHA
20
home purchase loans fell 1.9%, from 699 in February
200
10 2013 to 686 in February 2014, while the average FICO
score for Fannie Mae–backed loans fell 1.3%, to 744 in
0 100
Q1-96 Q1-99 Q1-02 Q1-05 Q1-08 Q1-11 Q1-14
the first half of 2014. As lending standards continue
Traditional Sales Median Price to ease, a greater number of prospective homebuyers
Note: Traditional Sales are estimated by subtracting foreclosures from total sales. will be able to access the credit needed to complete
Source: DataQuick
housing purchases. Demand has also been boosted by
mortgage rates, which are at historically low levels.
After five straight quarters of price appreciation in
excess of 20%, price growth, at 16% year-over-year, In a sign that the housing supply is slowly adjusting to
was relatively moderate in the second quarter of 2014. growing demand, traditional housing sales, which are

single-family homes statewide and the 10.4% increase

Overall, the strong demand for housing in in the price in Los Angeles County.
the region accounts for how hot the housing
market has been over the past year, while The growth in the median price for existing single-
the tight supply has kept the rate of price family homes extended throughout the Inland Em-
appreciation in the double digits over the pire, ranging from 12.1% in Temecula to 27.2% in
short run. Moreno Valley during the second quarter of 2014.
Moreover, the price gains in the overall region did not
conceal any pockets of weakness; the breakdown by
estimated by subtracting the number of foreclosures city illustrates how hot the market for single-family
from the total sales, have increased by 7.0% year-to- homes has been throughout the Inland Empire—every
date. The increase in traditional sales indicates that city experienced double-digit growth from the second
the widely reported decline of total home sales is due quarter of 2013 to the second quarter of 2014.
to the fact that there are fewer distressed properties
on the market. Although disappointing on the sur- Existing Single-Family Median Prices
California and Selected Counties, Q1-00 to Q2-14
face, a tight housing supply caused by a shortage of 800,000
distressed properties is ultimately good news for the

Median Price ($, SA)
600,000
Inland Empire—it means that fewer households are
struggling with troubled mortgages. And we are start- 400,000
ing to see the positive effects on housing demand from 200,000

continued job growth in the region, further contribut-
ing to the tight supply of housing inventory. Overall, 0
Q1-01 Q2-03 Q3-05 Q4-07 Q1-10 Q2-12 Q3-14
the strong demand for housing in the region accounts Riverside San Bernardino
for how hot the housing market has been over the Los Angeles Orange
California
past year, while the tight supply has kept the rate of Source: DataQuick
price appreciation in the double digits over the short

run. Over the medium- and longer-term, these cir-
cumstances should spur additional construction activ-
ity in the region.
Single-Family Housing Market
The median sales price for existing single-family

homes continued to increase in both Riverside County
(14.5%) and San Bernardino County (20.5%) from the
second quarter of 2013 to the second quarter of 2014.
Although the rate of price growth moderated consid-
erably in both counties over the past year, growth
slowed most in Riverside County. Nonetheless, price
growth in both counties outpaced growth elsewhere,
as evidenced by the 10.9% increase in the price for

Existing Single-Family Home Median Prices Existing Single-Family Sales

Location 2013YTD ($) 2014YTD ($) California and Selected Counties,Q1-00 to Q2-14
30,000 140,000
California Home Sales (SA)

Northern Region
120,000
Home Sales (SA)

Fontana 238,400 294,700 20,000
100,000
Ontario 254,400 310,200
Rancho Cucamonga 379,600 429,800 80,000
10,000
San Bernardino 137,600 168,900 60,000
Mojave Desert Region 0 40,000

Victorville 135,900 164,900 Q1-01 Q2-03 Q3-05 Q4-07 Q1-10 Q2-12 Q3-14
Riverside San Bernardino

Southeast Region Los Angeles Orange
Moreno Valley 183,800 233,800 California
Source: DataQuick
Murrieta 296,700 345,700
Perris 176,100 223,300
Temecula 336,600 377,300 The rapid growth of housing prices in the Inland Em-
Southwest Region
pire has begun to chip away at the relative afford-
Chino 337,100 386,200 ability of living in the region. For instance, the rela-
Corona 358,200 429,700 tive affordability of an existing single-family home in
Riverside 242,300 286,500 San Bernardino County compared to the median price
Source: DataQuick in Los Angeles has shrunk 4.2 percentage points over
Year-to-date through June the past year, while the relative affordability of liv-
Despite the robust growth rates, existing single-family ing in Riverside County has fallen by 2.2 percentage
homes in the Inland Empire remain considerably more points during this time. The decline of relative afford-
affordable than single-family homes in many mar- ability reduces the incentive to move further inland.
kets in California. For example, the median sales price Nonetheless, the Inland Empire will continue to at-
for existing single-family homes in San Bernardino tract residents who work on the coast; it will be impor-
($234,000) is around half the value of the median price tant, however, to pay close attention to the growth in
in nearby Los Angeles County, while the median price home prices relative to growth in the coastal areas, as
in Riverside ($288,500) is about 60% of the median fewer people will move into the region the more the
in Los Angeles. Additionally, the median price in San affordability gap decreases.
Bernardino County is around 37% lower than the me- As prices have increased over the past year, we have
dian across the state, while the median price in River- seen signs of a tight supply in the market for single-
side County is almost 23% lower than the statewide family homes. Marking the third consecutive quar-
median price. ter of declines, sales of single-family homes are down
13.7% year-to-date in Riverside County and 10.8% in
San Bernardino County. Housing inventories started
to recover over the past year, but not by enough to
put to rest concerns regarding the housing supply.
Riverside County has a housing supply of 4.8 months,
up 1.6 months since August 2013, and San Bernardino
has a housing supply of 4.9 months, up 1.9 months.
Nonetheless, inventories are still below the 6- to 8-

month supply that typically characterizes a healthy Foreclosures

housing market. California and Selected Counties, Q1-02 to Q2-14
2,000
Sales of Existing Single-Family Homes by Region
Index (Q1-02 = 100)

1,500
Location 2013YTD 2014YTD
1,000
Northern Region
Fontana 1162 1091 500
Ontario 610 550
Rancho Cucamonga 892 772 0
Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14
San Bernardino 1105 1111
Mojave Desert Region Los Angeles Orange
California
Victorville 1128 1008 Source: DataQuick
Southeast Region
Moreno Valley 1083 1057 An initial look at the number of defaults in the In-
Murrieta 1064 951 land Empire may lead some to expect a change in the
Perris 493 476
downward trend for foreclosures, as defaults jumped
Temecula 1031 893
by 4.7% from the first quarter of 2013 to the first quar-
Southwest Region ter of 2014. This increase is most likely due to the de-
Chino 359 311 layed processing of defaults and foreclosures caused
Corona 1522 1282
by the adoption of the Homeowner Bill of Rights at the
Riverside 2140 1773
beginning of 2013. Lenders have now had time to ac-
Source: DataQuick
climate to this policy and have started processing the
Year-to-date through June
backlogged paperwork, accounting for this initial in-
crease. This increase is little cause for worry, as it is
Distressed Properties dwarfed by the 30.1% year-over-year decline that oc-
curred in the Inland Empire during the second quarter
Ultimately, the much-discussed shortage in the hous- of this year. Further bolstering this point of view, the
ing supply is caused by the ongoing decline in dis- share of consumers with new foreclosures in Califor-
tressed properties. Foreclosures declined in both nia fell from 7% in the second quarter of 2013 to 4%
San Bernardino County (16.7%) and Riverside County in the second quarter of this year, according the New
(29.2%) from the first half of 2013 to the first half of York Federal Reserve’s Consumer Credit Panel.
2014, albeit at a slower rate than in previous years.
Additionally, the share of mortgages with negative eq- As the number of distressed properties on
uity in the Inland Empire fell from 31.4% in the first the market continues to dwindle, the supply
quarter of 2013 to 17.3% in the first quarter of 2014, al- of housing in the Inland Empire will remain
leviating concerns that strategic foreclosures remain constrained unless the shortfall is alleviated
a widespread risk in the region. by the construction of new homes.
This overall decline demonstrates that the increase

during the previous quarter was a temporary adjust-
ment and not a permanent shift from the downward
trend. However, we do expect that the long-term de-

cline in foreclosures will continue to slow down over family homes. As such, the homes currently being con-
the next year as distressed properties take on an even structed affect the high-end housing supply but do lit-
smaller role in the region’s real estate market. As the tle to resolve the shortage of affordable housing in the
number of distressed properties on the market con- Inland Empire.
tinues to dwindle, the supply of housing in the Inland
New Home Sales
Empire will remain constrained unless the shortfall is California and Selected Counties,Q1-00 to Q2-14
alleviated by the construction of new homes. 8,000
40,000

30,000
Home Sales (SA)

Defaults 6,000
4,000 20,000
1,500
Index (Q1-02 = 100)
2,000 10,000
1,000
0 0
Q1-01 Q2-03 Q3-05 Q4-07 Q1-10 Q2-12 Q3-14
500
Los Angeles Orange
California
0
Source: DataQuick
Q1-02 Q1-04 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14

Los Angeles Orange New Home Sales
California
Source: DataQuick Location 2013YTD 2014YTD
Northern Region
Fontana 137 80
Ontario 21 53
New Homes and Construction Rancho Cucamonga 128 123
San Bernardino 92 126
Sales of new homes in the Inland Empire also de- Mojave Desert Region
creased throughout 2014, falling by 6.4% year-to-date. Victorville 74 47
However, this decline is not as widespread as it was for Southeast Region
existing single-family homes. Ontario, Moreno Valley, Moreno Valley 18 35
San Bernardino, and Temecula all had an increase in Murrieta 276 110
the number of new home sales during this time. Perris 45 44
Temecula 164 213
As sales declined, the median price of these homes
Southwest Region
grew by 7.1% throughout the Inland Empire. As in the
Chino 190 168
market for existing single-family homes, prices grew
Corona 335 207
more in San Bernardino County (16.7%, to $419,000) Riverside 118 70
than in Riverside County (7.1%, to $352,000). More im-
Source: DataQuick
portant, the new homes currently on the market are Year-to-date through June
less affordable than the existing single-family homes.
In a response to rising prices, construction permits
The median price of new homes in Riverside County is
for new single-family homes in the Inland Empire in-
22% more expensive than the median price of existing
creased 2.9% year-to-date. However, all of this growth
single-family homes, while the median price of new
occurred in Riverside County, where permits grew
homes in San Bernardino County is almost 80% more
6.4% year-to-date. The number of permits issued in
expensive than the median price of existing single-

San Bernardino County fell by 6.1% during this time. prices increased by 16.5% in Riverside. Moreover, mul-
As such, we expect to see a quicker normalization of tifamily housing prices grew at a much faster rate than
the single-family housing market in Riverside County they did in neighboring regions¬—prices in Los An-
than in San Bernardino County. geles County climbed by 7.4%, while prices in Orange
County grew by 8.3%. This marked the seventh con-
Single-Family Permits Issued
secutive quarter of double-digit price appreciation for
250 existing condominiums.
Index (Q1-01 = 100, SA)
200
Existing Condominium Median Prices
150 California and Selected Counties, Q1-00 to Q2-14
500,000
100
Median Price ($, SA)

50 400,000
0 300,000
Q1-01 Q1-03 Q1-05 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15
Riverside San Bernardino 200,000

Los Angeles Orange
California
100,000
Source: Construction Industry Research Board
Q1-01 Q2-03 Q3-05 Q4-07 Q1-10 Q2-12 Q3-14
The bulk of permit growth occurred in the east and Los Angeles
California
Orange
southeast regions of the Inland Empire. In particu- Source: DataQuick
lar, the number of permits for single-family construc-

tion issued in Menifee, Indio, and Palm Desert grew Existing Condominium Sales
California and Selected Counties,Q1-00 to Q2-14
significantly. For example, the number of permits is- 8,000 30,000
sued year-to-date increased by 189 permits (143.2%)

6,000 25,000
Home Sales (SA)
in Menifee and by 203 permits (109.7%) in Indio.

4,000 20,000
Furthermore, the new single-family homes currently
permitted for construction may address the short- 2,000 15,000
age of affordable homes in the region. The average

0 10,000
value of the permits filed is $256,500 in Riverside and Q1-01 Q2-03 Q3-05 Q4-07 Q1-10 Q2-12 Q3-14
$253,800 in San Bernardino—values that are more in Riverside San Bernardino
line with the prices of existing homes throughout the Los Angeles
California
Orange
region. Source: DataQuick
At the same time, the number of sales for existing

Multifamily Housing Market condominiums has fallen for two consecutive quarters
in the Inland Empire. In particular, sales have fallen
With skyrocketing prices and diminishing sales, the by 8.4%, with 1,567 units sold since the second quar-
market for multifamily housing in the Inland Empire ter of 2013. The bulk of this decline occurred in five
is beginning to mirror the fundamentals of the exist- cities—Moreno Valley, Murrieta, Rancho Cucamonga,
ing home market. The median price for existing con- Riverside, and San Bernardino—as the decline in con-
dominiums increased 23.1% in San Bernardino from dominium sales has not been as pervasive as it has
the first half of 2013 to the first half of 2014, while been in other markets. In fact, sales in Ontario and

Corona, which account for almost 30% of all condo- Cost of Apartment Rent
minium sales in the region, grew by 4.0% and 8.1%, Selected Counties, Q1-08 to Q2-14
respectively, during this time. 1,600.0
Meanwhile, the market for apartments in the Inland

1,400.0
$/Month
Empire has continued to tighten over the past year.
The apartment vacancy rate in the region continued 1,200.0
its downward trend in the second quarter of 2014. De-
clining by 1.1 percentage points to hit 2.5%, it is among 1,000.0
the lowest rates in Southern California. Additionally, Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
positive net absorption of rental units was spread Riverside-San Bernardino MSA Los Angeles County
Orange County San Diego County
throughout the Inland Empire—only Fontana/Rialto Source: REIS
had negative net absorption of apartments during this

time. Moving forward, however, the stock of multifamily
Apartment Vacancy Rate units will not increase as much as it has in previous
Selected Counties, Q1-08 to Q2-14 years. The number of permits for multifamily con-
8 struction decreased by 10.0% year-to-date, although
San Bernardino accounts for the entire decline in
Percent, NSA
6 permits issued. In particular, the number of multi-

family permits issued in San Bernardino County fell
4 by 20.6% during this period, while they increased by
2.9% in Riverside County. As such, rents will rise at a
2 faster rate in San Bernardino County than in Riverside
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
County if current demand fundamentals hold going
Riverside-San Bernardino MSA Los Angeles County
Orange County San Diego County forward. Regardless, the Inland Empire is still domi-
Source: REIS
nated by single-family housing. Only 26.9% of the res-
idential construction permits issued year-to-date are
In a sign that the increase in multifamily units from for multifamily construction in the region. This comes
the previous year met the overall increase in demand as no surprise, as land is more abundant in the Inland
for rental units, the cost of rent increased by only Empire relative to other regions in Southern Califor-
2.1% year-over-year in the Inland Empire. From the nia.
second quarter of 2013 to the second quarter of this
Multifamily Permits Issued
year, the cost of rent grew throughout the region, California and Selected Counties, Q1-01 to Q2-14
most notably in Rancho Cucamonga (3.6%), the re- 400
Index (Q1-01 = 100, SA)
gion’s second-largest rental market, and in Indio Val- 300
ley (3.9%). 200
100
0
Q1-01 Q1-03 Q1-05 Q1-07 Q1-09 Q1-11 Q1-13 Q1-15

Los Angeles Orange
California

Apartment Summary by Submarket

Riverside-San Bernardino MSA, Q2-14
Vacancy Inventory Vacant Occupied Net Asking Rent Asking Rent
Submarket
Rate (%) Stock Stock Stock Absorption ($) Change (%)
Northern Region
Rancho Cucamonga 1.1 13,880 13,730 155 25 1,454 3.6
North Ontario 1.6 8,175 8,045 130 15 1,164 0.3
Colton/Loma Linda 1.6 11,535 11,345 190 20 1,155 1.4
Upland 2.3 5,825 5,690 135 25 1,130 1.3
Fontana/Rialto 3.5 10,660 10,290 375 -20 1,040 1.9
San Bernardino 2.7 12,750 12,410 345 25 860 1.3
Mojave Desert Region
Victorville 5.6 3,345 3,155 185 25 777 2.5
Southeast Region
Temecula/Murrieta 2.6 7,925 7,715 210 15 1,226 3.4
Perris 4.6 2,905 2,770 135 5 948 0.5
Hemet 5.0 3,315 3,150 165 15 802 1.4
Southwest Region
South Ontario/Chino 1.3 4,940 4,875 65 5 1,347 2.0
Riverside County/Corona 2.4 10,335 10,090 250 10 1,226 2.6
University City/Moreno Valley 2.6 16,645 16,215 435 50 1,084 2.6
Riverside/North Magnolia 2.2 9,540 9,330 210 10 1,059 1.7
East Region
Palm Springs/Palm Desert 3.3 6,370 6,160 210 15 965 1.8
Indio/La Quinta/Coachella 3.6 4,100 3,950 150 5 940 3.9
Source: REIS
Riverside-San Bernardino Multifamily Permits Multifamily Building Permits

Permitted Units
Location 2013YTD 2014YTD
Location 2007 2012 Year-to-date Change (%)
Permitted Units 2013 2014 07-13 13-14
Northern Region 499 52
Riverside 2,554 1,310 821 946 -48.7 15.2
Mojave Desert Region 0 2 San Bernardino 1,939 1,198 867 542 -38.2 -37.5
Southeast Region 660 556 Los Angeles 13,294 12,209 6,888 10,057 -8.2 46.0
Southwest Region 727 477 Orange 5,907 6,213 3,487 4,000 5.2 14.7
East Region 166 41 California 44,625 46,605 27,275 29,395 4.4 7.8
Permit Values ($ thousands) Source: Construction Industry Research Board

Note: Year-to-date through July
Northern Region 50.1 4.6
Mojave Desert Region 0.0 0.4
Southeast Region 67.6 47.1
Southwest Region 83.1 61.8
East Region 15.3 8.8
Note: Year-to-date through July

 
Commercial Real Estate

by Maximilian Saia
Contents
Overview 58
The Riverside-San Bernardino Office Market 60
The Riverside-San Bernardino Retail Market 63
The Riverside-San Bernardino Industrial Market 66
Charts and Tables 70
Demand for commercial real estate throughout the Inland Empire is continuing to grow. Despite this
demand, vacancy rates for office properties were flat over the past year, while retail and industrial prop-
erties showed slight increases in vacancy rates. The increases in vacancy rates are due primarily to new
stock coming online and should not be interpreted as a sign of contraction in the market.
Industrial properties are fueling growth in the commercial real estate market. Imports and exports han-
dled at the ports of Los Angeles and Long Beach are up by 7.7% and 1.4%, respectively, through July 2014
from the same period last year, when measured by twenty-foot equivalent units (TEUs). Airport cargo
at LAX and Ontario International Airport grew 6.2%, suggesting that Inland Empire industrial properties
will continue to be in demand.
Nonresidential construction permits are seeing a slight slowdown in growth. Permit values have been
basically flat, decreasing approximately 0.4% through the first two quarters of 2014, compared with the
first two quarters of 2013.
Of all types of properties, industrial properties still represent the largest share of planned construction,
accounting for 25% as of the second quarter of 2014. Major projects include a new logistics center devel-
opment in Rancho Cucamonga and the Palm Distribution Center in the City of San Bernardino.
As was the case in our last report, an oversupply of offices continues to frighten potential builders. Office
vacancy rates in the area remain above 20% in most regions within the Inland Empire; however, the Class
A office market is starting to show signs of improvement.
Bright spots in the retail real estate market exist in areas with vacancy rates below the average for the
Inland Empire, as stores look to position themselves in sub-regions with stronger labor markets.
Overview tional Airport and the ports of Los Angeles and Long
Beach. Despite being down 21% from the same time
Overall, the retail and office markets continue to see last year, Industrial permit issuances continue to be
gradual improvement as companies slowly fill the the main driver of the commercial real estate mar-
heavily discounted spaces and as prospects improve ket. Industrial permits accounted for 25% of all new
with the growth of the economy and labor market. De- nonresidential permit activity in the second quarter
velopment remains concentrated in areas with lower of 2014, compared with 4% for office permits and 13%
vacancy rates, while builders remain cautious in ar- for retail. Permit values in 2014 are 3.6% higher than
eas with high rates of vacancy. Industrial real estate this time last year. It’s also important to keep in mind
will continue to be a driver of growth in the com- that 2013 was a blockbuster year for new planned in-
mercial market as the Inland Empire proves to be an dustrial permits—new industrial permit values rose
ideal distribution location with its close proximity to by nearly 170% over 2012. This context helps to ex-
the I-215, I-15, SR-60, SR-91, and I-10 freeways, giv- plain why Beacon Economics remains optimistic about
ing wholesalers, distributors, freight forwarders, and the local industrial market despite the fact that there
import-export firms direct access to Ontario Interna-

has not been significant growth in new permits this spectively. Construction-specific loans for non-single-
year relative to 2013. family homes (data is grouped for multifamily con-
struction with more than four units and nonresiden-
Nonresidential Building Permits
Q1-2004 to Q2-2014
tial construction) increased over the year for banks in
30 the state (up by 19.2%) as well as for banks through-
800
Share of Permits by Type (%)

Quarterly Permits ($ Millions)
out the nation (up by 7.3%). As California continues to

600 20 outpace the nation in lending in these key categories,
400
look for growth in building permits to continue to ac-
10 celerate in the coming years.
200
Vacancy rates for office, retail, and industrial proper-
0 0
ties have remained flat or increased from a year ago,
Q1-05 Q3-06 Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
Total Building Permits Office

but vacancy rates still remain close to their lowest
Retail Industrial level in the last three years.28 Likewise, nonresidential
construction permits are seeing a slight slowdown in
growth. Permit values decreased approximately 3% in
Cap rates are continuing to trend upward for both
the second quarter of 2014 compared with the third
retail and industrial properties, as investors remain
quarter of 2013.29 Increases in vacancy rates, cou-
bullish and continue to look for new retail and indus-
pled with a slowdown in the growth of permit values,
trial properties to add to their portfolios. According
may seem concerning when examined in isolation, but
to the National Real Estate Investor (NREI) and bro-
overall fundamentals are continuing to improve in the
kerage Marcus & Millichap, 61% of public and private
Inland Empire, and we expect the commercial market
investors and developers surveyed in the first quarter
to expand in the coming years. Again, we remain opti-
of 2014 believe it is currently a good time to buy com-
mistic about the local market despite what appears to
mercial properties and plan to increase their invest-
be tepid growth because this growth is coming on top
ments in the next 12 months, while an additional 22%
of a blockbuster 2013.
expect their investments to remain the same. Among
respondents who expect their real estate investment Overall building permit figures don’t tell the whole
to increase, an average 20% increase is predicted. The story for another reason: some pockets of the Inland
fact that investors plan to increase their commercial Empire have experienced a great deal of building per-
property holdings is a sign of good things to come for mit growth in 2014 when compared with the same
the Inland Empire, which has plenty of these commer- time last year. The southeast and northern regions of
cial properties. the Inland Empire in particular have seen a significant
amount of building permit growth.
Lending data from California-based banks show that
commercial construction should continue to grow.
Commercial and industrial (C&I) loans outstanding at
California-based banks increased by 11.4% from the
second quarter of 2013 to the second quarter of 2014,
compared with the 4.6% increase for all banks in the 28
Commercial real estate data throughout this chapter were
nation over the same period. Commercial real estate provided by real-estate research firm Reis Inc. unless otherwise
noted.
loans also grew at a faster rate in the state than in 29
Construction permit data throughout this chapter were pro-
the nation over the same period, at 8.8% and 3.3%, re- vided by the California Homebuilding Foundation, unless other-
wise noted.

Bank Lending Summary

California California United States
Loan Type
2012 YTD ($) 2013 YTD ($) 2014 YTD ($) (% Change) (% Change)
Number of institutions reporting 227 212 202 -4.83 -2.98
Net loans and leases 300,555,964 321,446,621 367,505,589 14.33 3.70
Construction and land development 6,997,234 7,065,266 8,647,204 22.39 6.90
Commercial real estate 77,363,315 83,626,129 90,986,317 8.80 3.29
Multifamily residential real estate 16,464,466 18,769,932 22,372,574 19.19 12.17
1-4 family residential 104,764,550 106,637,443 126,768,418 18.88 -1.24
Farm loans 4,941,938 5,196,320 4,793,563 -7.75 2.16
Commercial and industrial loans 61,113,445 66,494,306 74,056,508 11.37 4.63
Loans to individuals 15,829,270 16,625,934 17,423,655 4.80 1.27
Credit cards 291,316 268,096 236,610 -11.74 -2.06
Other revolving credit plans 619,098 579,968 564,044 -2.75 1.34
Automobile loans 4,491,113 4,947,061 5,402,170 9.20 6.99
Source: FDIC
Total Nonresidential put, employment, and population growth rates. These

Building Permit Values ($ Millions) solid fundamentals will drive business activity and
Location 2013 YTD 2014 YTD encourage demand for commercial real estate in the
short term.
The Riverside-San Bernardino Office
East Region 124.2 104.3 Market
Unincorporated Areas 135.1 77.9
Source: Construction Industry Research Board Over the past year the office market in the Inland Em-
Note: Year to date through July. pire has seen negligible improvement. In fact, just by
looking at official top-level figures, 2014 looks almost
Growth in key industries will also drive growth in identical to 2013. Vacancy rates remained above 20%,
the commercial real estate market moving forward. at 23.6%, in the second quarter of 2014, unchanged
Wholesale Trade and Transportation and Warehous- from the same quarter a year earlier; office rents are
ing (two sectors that rely heavily on industrial proper- up a mere 13 basis points, to $21.41 per square foot
ties along the supply chain) have seen year-over-year during the second quarter of 2013, compared with
gross metropolitan product (GMP) growth of 12.9% $21.29 from the same quarter in 2013; and there has
and 8.1%, respectively. GMP in the Construction sector been only 28,000 square feet of net absorption over the
in the Inland Empire grew 5.3% over the last year, 190 past year.
basis points more than the sector for the state overall,
a possible indication that the commercial real estate Until some noticeable uptick in net absorption materi-
market will continue to show signs of improvement. alizes, the office market will most likely remain more
It’s important to note that these sectors are not grow- sluggish than the retail or industrial markets. High va-
ing in isolation. The Inland Empire has strong out- cancy rates in the Inland Empire relative to neighbor-

ing areas are continually proving to be a strong disin- Office - Class A

centive to would-be developers. Q1-09 to Q2-14
27 32
Office Net Absorptions
Vacancy Rate (%)

30
Rent per sq./ft. ($)

Selected Counties, Q1-08 to Q2-14 26
1,000
28
Thousands of Sq. Ft.
25
0 26
24 24
-1,000
09
09
10
10
11
11
12
12
13
13
14
1-
3-
1-
3-
1-
3-
1-
3-
1-
3-
1-
Q
Q
Q
Q
Asking Price Vacancy Rate
-2,000
Source: Reis, Inc.
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14

Office rents are highly discounted in the Inland Em-
Source: REIS
pire relative to other nearby areas, such as Los Ange-
les, Orange, and San Diego Counties. Rather than con-
However, top line numbers don’t always tell the whole
verging, rents are continuing to grow faster in these
story, and this is certainly true for the Inland Empire’s
other areas relative to the local market, with rents in
office market. While the overall region seems to dis-
Los Angeles, Orange, and San Diego Counties growing
play little sign of improvement, there are parts of the
between 3.0% and 3.8% over the past year, compared
region showing signs of growth; this will be discussed
with 0.6% for the Inland Empire.
in more detail later in this section.
Office - Class BC
Office rents are highly discounted in the 19
Q1-09 to Q2-14
24
Inland Empire
Rent per sq./ft. ($)
Vacancy Rate (%)

22
18
Moreover, there are some variations among the dif- 20
ferent types of office space. While this picture of the 17

18
Inland Empire office market—with high vacancy rates,
muted development, and low net absorption—holds 16 16
09
09
10
10
11
11
12
12
13
13
14
true in general for all office space, the Class A mar-

1-
3-
1-
3-
1-
3-
1-
3-
1-
3-
1-
Q
Q
Q
ket has fared slightly better than the Class B and Class Asking Price Vacancy Rate
C space. Source: Reis, Inc.
This discount has not yet translated into a broad im-

provement in overall vacancy rates and net absorp-
tion, but it could very well be benefiting the mar-
ket for Class A office space. While higher in abso-
lute terms, vacancy rates in Class A office space have
shown a much stronger downward trend when com-
pared to rates in Class B and Class C office space.

Office Rent proving still. Certain cities in the Inland Empire are
Selected Counties, Q1-08 to Q2-14 doing remarkably well, and their success offers hope
35
for the rest of the region.
$ Per Sq. Ft. Per Year
30 Total Office Property

Building Permit Values ($ Millions)
25 Location 2013 YTD 2014 YTD
20
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14

Orange County San Diego County East Region 0.8 5.4
Source: REIS

Indeed, major corporate players have recently signed
Note: Year to date through July.
leases for Class A space in the Inland Empire, includ-
ing Wells Fargo, CBRE, and Merrill Lynch. In fact, lease
signings at Empire Towers in Ontario exceeded $27
The Chino/Montclair/Upland submarket, which is
million in the first six months of 2014. As Scott Fle-
part of the southwest region of the Inland Empire,
mer, executive vice president of CIP Real Estate, notes,
has much lower vacancy rates than the rest of the re-
“along with Corona and Downtown Riverside, the On-
gion. At 16.1%, vacancy rates (as of the second quarter
tario office market, is filling up with larger spaces be-
of 2014) in this submarket are lower than any other
coming increasingly scarce.”30
in the two-county region. Geography plays a major
Office Rent and Discount Rate role in the success of this submarket. West of the On-
Inland Empire and Select Counties, Q1-08 to Q2-14 tario Airport and in close proximity to the I-10, SR-
23.0 -20
60, and SR-210 freeways, the location makes it possible
Inland Empire Discount (%)
for businesses to hire workers In Los Angeles and Or-

22.5 -30
ange County who can make the relatively quick com-

22.0
-40 mute, and the proximity to the airport eases business
21.5 travel. This submarket highlights a growing trend of
-50
businesses seeking cheaper office space and heading
21.0
east to find it, a trend that is also beginning to affect
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14

other nearby cities, such as Rancho Cucamonga, On-
Orange County San Diego County tario, and Corona. For now, it appears the western part
of the Inland Empire will see the biggest decreases
Source: REIS
in vacancy rates, with continued eastward expansion

Echoing this bullish sentiment, Beacon Economics seeming more likely down the road.
views this decrease in YTD permits and the soft net ab-
sorption numbers to be temporary. The overall office
market hasn’t generated the momentum seen in other
aspects of the economy, but conditions are much bet-
ter than they were two or three years ago and are im-
30
Inland Empire Business Journal, September 4, 2014.

Office Summary by Submarket

Vacancy Inventory Vacant Occupied Net Asking Chg. in Asking
Submarket Rate Stock Stock Stock Absorption Rent Rent Q2-13
(%) (Thousands of Square Feet) ($) to Q2-14 (%)
Northern Region 25.0 10,559 2,638 7,921 -11 20.94 -0.1
Southeast Region 22.0 1,153 254 899 37 21.06 2.4
Southwest Region 22.4 7,533 1,689 5,844 -6 22.31 1.1
East Region 20.8 1,124 234 890 -5 20.05 3.6
Source: REIS
Net Absorption vs. Y-o-Y Office-Using Emp. needed for a given number of staff. Before CBRE trans-
Q1-99 to Q2-14 formed the office, it occupied 21,100 square feet; the
Net Absorption sq./ft. (thousands)
200
15 Office-Using Employment new Workplace360 office is 15,000 square feet, a re-
100 duction of 40%.31 A shift to this type of model could
5
put downward pressure on net absorption, instigating
0 -5 a dampening effect that isn’t normally seen in times of
-100 -15 growth.
-200 -25 In the current environment, those reaping the ben-

efits may very well be the investors who own or are
Q 9
Q 0
Q 1
Q 2
Q 3
Q 4
Q 5
Q 6
Q 7
Q 8
Q 9
Q 0
Q 1
Q 2
Q 3
14
1
9
0
0
0
0
0
0
0
0
0
0
1
1
1
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
1-
Q
Net Absorption Employment

buying office space in the Inland Empire. A 58,900-
Source: Reis, Inc. square-foot Class A office building in Corona recently
sold for $7.15 million. As Dan Vittone, who repre-
One potential impediment to decreases in vacancy sented the buyer, commented, “the buyer saw this as a
rates may be the rise of the remote or at-home worker. value-add opportunity as the property was 51% occu-
Previously, growth in office-using employment (in pied at the close of escrow.”32 With cheap rents, high
sectors such as Information, Financial Activities, and vacancy rates, and strategic locations in a growing
Professional/Business Services) would lead to a corre- economy, the region’s office market offers investors
sponding increase in net absorption, but that link has the chance to get ahead of the curve; we expect to see
weakened in recent years. increases in net absorption and falling vacancy rates
in the coming years.
As can be seen from the chart above, office-using em-
ployment continues to grow but—unlike in previous
business cycles—positive net absorption has largely The Riverside-San Bernardino Retail
failed to follow suit. Businesses in the Inland Empire
are starting to push the flexible “free address” ap-
Market
proach. On June 30th, the commercial real estate ser-
vices firm CBRE unveiled its new “Workplace360” of- As a result of employment growth throughout the
fice in Ontario. This flexible “hotel-style” office space Inland Empire, consumers have been spending more
allows workers to work remotely, and it is designed freely. Despite facing increased competition from
in such a way that a much smaller amount of space is 31
Inland Empire Business Journal, September 2014.
32
Inland Empire Business Journal, June 2014.

e-commerce companies, brick-and-mortar retailers

have seen a fair amount of recent success. In fact, just
Over the course of the past few years, the
this month, both Kohl’s and Walmart promised big
retail market in the Inland Empire has
staff increases for the holidays. Walmart in particu-
improved at a moderate pace.
lar expects to hire 10% more holiday workers this year
than last year.33 During the first half of 2014, retail
The northern region, comprising Rancho Cucamonga,
permits have grown in both Southern California and
Ontario, Fontana, Redlands, and several other sur-
the state as a whole.
rounding areas, has grown the most year to date,
Over the course of the past few years, the retail market increasing 264.7% versus the same period in 2013.
in the Inland Empire has improved at a moderate pace. The strong uptick in retail permits for both San
This trend has continued so far in 2014; year-to-date Bernardino County and the northern region of the In-
building permits for the Inland Empire have increased land Empire can in large part be traced to retail per-
by 41.3% over the same period a year ago. The County mits in Rancho Cucamonga. During the first half of
of San Bernardino is driving this growth, with permits 2013, Rancho Cucamonga had no retail building per-
in the county growing 88% when compared with the mit development, but so far this year retail permit val-
first two quarters of 2013. Retail permit values have ues in the city have totaled $69.2 million.
increased 37.0% in California, compared with 138.5%
Two retail projects approved in July for Rancho Cu-
and 52.3% for Orange County and Los Angeles County,
camonga comprise the $69.2 million in permits. Since
respectively.
these projects are so new, little is known about them.
One of the Rancho Cucamonga retail projects is val-
Year-to-date building permits for the Inland ued at $42 million, while the other project is val-
Empire have increased by 41.3% over the ued at $27.2 million.34 The southwest region has seen
same period a year ago. the largest year-to-date decline, owing primarily to
slowdowns in retail permits in the Cities of River-
Total Retail Property side and Chino. During the first half of last year, both
Building Permit Values ($ Millions) cities had a combined $ 29.1 million in permits, com-
pared with only $5.4 million this year. Nevertheless,
Location 2013 YTD 2014 YTD
both Riverside and Chino are cities with improving re-
Northern Region 28.6 104.3 tail markets and should continue to foster growth in
Mojave Desert Region 2.0 2.2 the southwest region in the future—2013 was a great
Southeast Region 2.9 23.5 year for retail permits and the continued development
Southwest Region 29.6 9.9 gives us reason to remain optimistic.
2013 was a great year for retail permits and
Source: Construction Industry Research Board the continued development gives us reason
Note: Year to date through July. to remain optimistic.
33
Debra Gruszecki, ”Kohl’s, Wal-Mart Promise Big Staff-Up for
34
Holiday,” The Press-Enterprise, September 18, 2014, available at See the July 2014 California Construction Review produced
http://www.pe.com/articles/holiday-750233-season-hire.html. by the California Homebuilding Foundation.

Retail Summary by Submarket

Northern Region 9.8 19,248 1,894 17,354 28 20.25 1.2
Mojave Desert Region 9.6 4,433 424 4,009 -9 16.38 0.2
Southeast Region 9.6 9,169 881 8,288 -10 20.84 1.6
Southwest Region 7.2 10,241 733 9,508 -12 20.78 2.1
East Region 15.3 7,761 1,188 6,573 31 25.64 3.4
Source: REIS
Retail Vacancy Rate Retail Net Absorption

Selected Counties, Q1-08 to Q2-14 Selected Counties, Q1-08 to Q2-14
400
10

200
8
Percent
0
6
-200
4
-400
2
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14 Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
Riverside-San Bernardino MSA Los Angeles County Riverside-San Bernardino MSA Los Angeles County
Orange County San Diego County Orange County San Diego County
Source: REIS Source: REIS
Net absorption in the Inland Empire decreased for re- Positive net absorption in the east region is a good
tail properties over the past year. Indeed, despite solid sign, as the region maintains a much higher retail
building permit growth, the Inland Empire is having a vacancy rate than seen in other Inland Empire re-
much harder time filling vacant space in comparison gions—more than double the vacancy rate in the
with San Diego, Los Angeles, and Orange Counties, all southwest region. This positive absorption is due in
of which have seen positive net absorption over the part to the efforts and abilities of some cities in the
past year. Vacancy rates ticked up 20 basis points over east, like Palm Springs and Rancho Mirage, to better
the last year due to the negative net absorption. Mean- brand themselves as vacation destinations and better
while, Los Angeles and Orange County vacancy rates augment existing hotels and restaurants. For example,
fell by 20 basis points. the lobby of the Hard Rock Hotel in Palm Springs has
been awarded the 2014 Gold Magellan Award for out-
standing design.35
In the City of San Bernardino, a rare development op-
portunity has come onto the market at a 1,900-acre
35
Debra Gruszecki, “Hard Rock Hotel’s Lobby Lauded,”
The Press-Enterprise, September 19, 2014, available at
http://www.pe.com/articles/hotel-750297-hard-rock.html.

resort. The City of San Bernardino has already ap- strong increases in net absorption, the heavily dis-
proved development of an additional 808,000 square counted prices in the Inland Empire should continue
feet of commercial space, of which 200,000 will be to remain attractive to businesses looking to capitalize
retail shops and restaurants, while another 200,000 on the region’s strong population growth and increas-
square feet will be for a new 300-room hotel.36 Bea- ingly wealthy and educated population.
con Economics maintains that in the near term the ar-
Currently it appears that overall, food and beverage
eas of the Inland Empire that will see the largest in-
retailers are driving the success in the retail sector.
creases in net absorption will be the higher-income
In downtown Riverside, 10 restaurants have opened in
western areas and the heavily tourism-oriented areas
the last 24 months.37 According to Bart Watson, staff
like Cabazon, but it is encouraging to see pockets of
economist for the Brewers Association, almost all of
positive net absorption across the Inland Empire.
the breweries in Riverside and San Bernardino Coun-
Retail Rent ties have opened in the past few years.38 This trend
Selected Counties, Q1-08 to Q2-14 can be seen all over the Inland Empire. From two new
35
taquerias in Hemet, to a new farm-to-table restaurant
in Corona, the new restaurants indicate that as the
30
population grows and incomes increase in the Inland
Empire, success in the retail market will follow suit.39
25
20 The Riverside-San Bernardino Industrial

Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
Riverside-San Bernardino MSA Los Angeles County Market

Source: REIS
The commercial real estate market has been bolstered

Retail Rent and Discount Rate
Inland Empire and Select Counties, Q1-08 to Q2-14
by the industrial sector, which often grows in tandem
22.5 -30 with an increase in trade flows. Industrial properties
that support nearby seaports and airports have seen
22.0 -35
increased demand in recent years. The San Pedro Bay
21.5 -40 twin ports have experienced a 2.4% increase in TEUs
handled year to date through July 2013 from a year
-45
21.0
ago, but a much bigger factor has been the sustained
20.5
-50 trade growth since 1995—the number of TEUs handled
Q1-08 Q3-09 Q1-11 Q3-12 Q1-14
Riverside-San Bernardino MSA Los Angeles County 37

Orange County San Diego County Laurie Lucas, “City Relishing a Restaurant Boom,”
Source: REIS The Press-Enterprise, September 10, 2014, available at
http://www.pe.com/articles/riverside-749795-restaurant-
square.html.
Year-over-year retail rents have increased 1.8%, yet 38
David Olson, “Inland Area Experiencing a Beer Renaissance,”
these became further discounted relative to Los An- August 25, 2014, available at http://www.pe.com/articles/beer-
748788-craft-breweries.html.
geles and San Diego Counties, where rents grew by 39
“Two Restaurants to Check Out,” The Press-Enterprise,
even more. Although it has yet to fully materialize into August 19, 2014, available at http://www.pe.com/articles/-
747135--.html, and “Blackburn’s Farm to Table Opens in
Corona,” The Press-Enterprise, August 19, 2014, available at
36
Inland Empire Business Journal, May 2014. http://www.pe.com/articles/-747675--.html.

has jumped from 5 million TEUs in 1995 to over 14 mil- 10.5% in the second quarter of 2013. Part of this uptick
lion TEUs in 2012. in vacancy is due to new stock coming online after the
large increase in new industrial permits in 2013. An-
A surge in demand for industrial real estate in the
other explanation of this dynamic considers the cur-
Inland Empire has occurred over the past few years.
rent makeup of the industrial properties in the Inland
This demand has been a primary driver of growth in
Empire compared to the type of property that fits the
the industrial market as the Inland Empire proves to
needs of the companies moving into the area.
be an ideal distribution location, with its close prox-
imity to the I-215, I-15, SR-60, SR-91, and I-10 free- Warehouse & Distribution Ctr. Vacancy Rate
ways and with direct access to Ontario International Selected Counties, Q1-10 to Q2-14
16
Airport and the ports of Los Angeles and Long Beach.
14
According to Colliers Senior Executive Vice President
Kevin Mckenna, demand for industrial buildings has 12
Percent
surged for e-commerce companies and retailers who 10
have witnessed unprecedented growth in online pur-
8
chasing.40 Companies that have recently located or
expanded their operations to the Inland Empire in- 6
Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
clude Amazon, Home Depot, Kohl’s, Unilever, FedEx, Riverside-San Bernardino MSA Los Angeles County
and Pepsi.41 Orange County San Diego County
Source: REIS
Large distribution buildings in the Inland Much of the vacant industrial property in the Inland
Empire continue to be in strong demand. Empire is vacant simply because it isn’t large enough
to meet the needs of the businesses operating in the
Industrial Net Absorptions: Warehouse & Dist. Ctr. area; most of the new stock coming online is for prop-
Selected Counties, Q1-10 to Q2-14 erties that are 500,000 square feet and larger. So,
4,000 as large industrial properties flourish, smaller ones
are left unused, explaining the relatively constant va-
2,000
cancy rates in the market over the past year. Indeed,
0 according to Jay Dick, CBRE’s senior vice president,
“Large distribution buildings in the Inland Empire
-2,000
continue to be in strong demand. The vacancy rate for
-4,000 buildings over 500k square feet in the Western Inland
Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
Empire at the end of the first quarter of 2014 was just
Orange County San Diego County 1.8%.”42
Source: REIS
Demand for industrial buildings has surged

Despite a large increase in net absorption of 7.8 mil-
for e-commerce companies and retailers who
lion square feet over the past year, the vacancy rate
have witnessed unprecedented growth in
for industrial property actually increased ever so
online purchasing.
slightly, to 10.6% in the second quarter of 2014 from
40
Inland Empire Business Journal, July 2014.
41 42
Inland Empire Business Journal, July 2014. Inland Empire Business Journal, June 2014.

Warehouse & Distribution Ctr. Rent and Discount Rate Total Industrial Property
Inland Empire and Select Counties, Q1-10 to Q2-14 Building Permit Values ($ Millions)
-40
4.4

4.3
-45 Northern Region 95.0 5.4
4.2 -50 Southeast Region 32.2 80.0
4.1 -55
East Region 0.9 0.0
Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Unincorporated Areas 10.9 0.1
Orange County Source: Construction Industry Research Board
Source: REIS Note: Year to date through July.
At this time last year the southwest and northern re-
Much of the vacant industrial property in gions of the Inland Empire were responsible for 76.6%
the Inland Empire is vacant simply because of year-to-date industrial permit value. So far this
it isn’t large enough to meet the needs of the year, those two regions have cooled off a bit, and the
businesses operating in the area. southeast region is leading the way with $80 million in
industrial permits, accounting for 74.4% of the year-
to-date total. Last year, Ontario and San Bernardino
Industry Rent: Warehouse & Distribution Ctr. were the locations of the majority of the permits in
Selected Counties, Q1-10 to Q2-14
8 the northern region, and permits issued in Chino ac-
counted for $47.6 million of the $49 million total in the
7
southwest region.
6
This year it’s been Moreno Valley leading the way, ac-
5 counting for all of the southeast region’s industrial
building permits. The $80 million industrial permit for
4
Q1-10 Q1-11 Q1-12 Q1-13 Q1-14
Moreno Valley was for a tenant improvement project
Quarter
and replacement of Aldi Foods’ shell structure.43 Over
Orange County San Diego County the past year, Moreno Valley had a few other big deals,
Source: REIS
including a $25.3 million mezzanine construction and
tenant improvement project for a commercial struc-
The strong demand for industrial property has led to ture in December of 2013, a new $52.1 million concrete
a faster increase in rent prices in the Inland Empire tilt-up warehouse, and a new $19.4 million industrial
than in Los Angeles, Orange, or San Diego Counties. shell building, both in September of 2013.44
That being said, industrial rents in the Inland Empire
Large industrial projects are the new normal in the
are still 41.8% cheaper than they are in Los Angeles
Inland Empire, with the southeast, southwest, and
County, 42.0% cheaper than in Orange County, and
northern regions leading the way. The east and Mo-
71.8% cheaper than in San Diego County as of the sec-
43
ond quarter of 2014. See the May 2014 California Construction Review produced
by the California Homebuilding Foundation.
44
See the September 2013 and December 2013 California Con-
struction Reviews produced by the California Homebuilding Foun-
dation.

Industrial Summary by Submarket

Warehouses and Distribution Centers
Northern Region 9.2 210,194 19,409 190,785 940 4.15 2.5
Mojave Desert Region 16.3 9,361 1,529 7,832 -33 3.98 0.3
Southeast Region 15.8 19,724 3,123 16,601 342 4.53 1.7
Southwest Region 10.9 47,665 5,176 42,489 343 5.16 1.6
East Region 9.3 3,701 346 3,355 47 4.75 0.8
Flex/Research and Development
Northern Region 9.1 12,204 1,105 11,099 -71 7.64 -0.2
Mojave Desert Region 34.2 319 109 210 -3 8.57 -0.1
Southeast Region 19.7 3,646 717 2,929 -5 6.99 0.2
Southwest Region 26.8 3,628 972 2,656 14 6.87 0.3
East Region 19.1 2,444 467 1,977 22 7.75 0.3
Source: REIS
jave Desert regions are continuing to struggle, ac-

counting for just $900,000 in industrial permits in the
first half of last year and $500,000 so far this year.
For all the recent industrial development in the south-
east and southwest regions, it may come as a surprise
that vacancy rates in those regions are higher than
in the east region, where industrial development has
been scarce. This circles back to the analysis made
earlier in this section—the need for large industrial
structures is driving permit growth in these areas;
vacancy rates are remaining high because businesses
don’t have use for the smaller industrial properties in
those regions. Overall, the high demand for large in-
dustrial properties looks to remain intact in the short
term as companies continue to take advantage of the
geographic and cost advantages the Inland Empire
market offers.

Charts and Tables
Nonresidential Construction
Location 2008 2009 2010 2011 2012 2013 2013YTD 2014YTD
Total
Riverside 1,022.4 391.0 544.4 588.2 574.3 767.0 424.7 413.9
San Bernardino 763.4 337.3 255.4 364.3 556.2 691.8 375.6 363.7
Los Angeles 4,564.7 2,695.4 2,721.3 3,079.8 3,518.8 3,851.0 2,166.8 3,541.1
Orange 1,424.6 982.1 1,138.5 1,279.9 1,191.4 1,375.6 795.6 1,128.6
California 19,211.6 10,866.3 11,199.8 13,061.1 13,878.0 20,782.0 11,353.3 13,234.6
Office
Riverside 174.8 69.4 144.8 16.5 232.7 232.6 113.8 274.2
San Bernardino 33.2 8.2 7.0 1.2 16.4 26.8 23.1 15.5
Los Angeles 446.9 184.8 102.9 181.9 176.7 277.1 157.0 177.1
Orange 127.6 6.5 101.9 74.7 611.2 414.7 394.4 49.8
California 2,014.4 511.1 626.6 672.1 1,451.1 1,455.9 659.0 1,117.9
Retail
Riverside 335.6 54.4 146.5 208.0 85.5 108.6 56.5 75.1
San Bernardino 243.4 33.9 26.7 57.6 102.3 128.4 60.1 113.1
Los Angeles 480.0 205.9 274.1 235.6 146.3 384.1 188.6 315.9
Orange 164.0 68.2 52.7 77.6 32.3 329.4 240.3 268.8
California 2,811.5 936.0 895.9 956.0 915.9 2,064.1 1,091.2 1,494.9
Industrial
Riverside 138.1 32.1 0.9 6.4 77.7 671.9 349.4 307.9
San Bernardino 129.9 40.5 16.3 32.6 218.7 444.8 254.0 42.5
Los Angeles 145.6 62.6 78.9 111.6 169.8 302.6 215.9 65.1
Orange 14.2 0.0 23.0 10.3 102.6 47.4 10.5 66.6
California 938.1 359.9 358.3 478.9 1,407.9 1,044.9 499.1 442.1
Alterations
Riverside 277.6 171.0 248.1 287.0 186.4 401.5 214.7 230.7
San Bernardino 223.3 157.5 139.3 197.3 222.5 214.3 115.8 127.0
Los Angeles 2,191.5 1,690.4 1,651.6 1,768.5 2,164.8 2,151.9 1,253.8 1,664.2
Orange 796.4 667.4 732.3 884.5 750.9 894.7 524.6 588.4
California 8,776.3 6,602.1 6,913.9 8,144.5 7,799.2 9,408.2 5,739.6 6,866.8

Total Nonresidential Total Alterations and Renovations

Building Permit Values ($ Millions) Building Permit Values ($ Millions)
Location 2013 YTD 2014 YTD Location 2013 YTD 2014 YTD
Northern Region 258.6 290.1 Northern Region 100.9 91.9
Big Bear Lake 0.0 0.0 Big Bear Lake 0.0 0.0
Colton 5.5 1.5 Colton 0.0 1.3
Fontana 26.8 20.4 Fontana 20.4 13.2
Grand Terrace 0.1 4.3 Grand Terrace 0.1 3.4
Highland 4.2 0.4 Highland 0.5 0.4
Loma Linda 1.5 89.9 Loma Linda 0.5 6.0
Montclair 5.1 11.3 Montclair 5.1 11.3
Ontario 72.3 40.1 Ontario 14.6 32.2
Rancho Cucamonga 24.1 77.1 Rancho Cucamonga 12.6 5.3
Redlands 10.4 25.3 Redlands 1.9 1.6
Rialto 0.0 0.0 Rialto 0.0 0.0
San Bernardino 102.4 13.2 San Bernardino 41.2 11.5
Upland 0.4 0.6 Upland 0.4 0.5
Yucaipa 5.8 5.8 Yucaipa 3.6 5.1
Mojave Desert Region 15.7 43.2 Mojave Desert Region 12.6 29.3
Adelanto 0.2 5.6 Adelanto 0.1 4.8
Apple Valley 2.5 4.3 Apple Valley 1.4 3.8
Barstow 1.7 11.8 Barstow 1.5 11.2
Hesperia 2.5 1.6 Hesperia 2.3 1.4
Needles 1.0 2.7 Needles 0.9 2.5
Victorville 7.8 17.2 Victorville 6.4 5.6
Southeast Region 108.0 193.4 Southeast Region 34.3 55.8
Banning 0.4 1.8 Banning 0.4 1.8
Beaumont 19.1 4.6 Beaumont 1.9 3.9
Calimesa 0.0 0.1 Calimesa 0.0 0.1
Canyon Lake 1.8 0.1 Canyon Lake 1.7 0.0
Hemet 0.4 3.0 Hemet 0.4 2.9
Lake Elsinore 1.2 2.2 Lake Elsinore 0.8 1.8
Menifee 0.4 7.3 Menifee 0.4 5.0
Moreno Valley 4.4 132.0 Moreno Valley 3.3 14.3
Murrieta 11.6 16.9 Murrieta 11.0 12.0
Perris 47.2 0.7 Perris 0.0 0.7
San Jacinto 2.9 2.3 San Jacinto 2.0 2.2
Temecula 14.4 19.2 Temecula 8.1 8.1
Wildomar 4.3 3.2 Wildomar 4.2 3.1
Southwest Region 180.7 110.9 Southwest Region 74.8 74.3
Chino 72.1 8.6 Chino 7.8 6.7
Chino Hills 1.5 5.4 Chino Hills 1.5 3.4
Corona 22.0 29.0 Corona 22.0 20.7
Eastvale 7.7 8.0 Eastvale 7.0 6.1
Jurupa Valley 0.3 18.7 Jurupa Valley 0.2 2.6
Norco 0.9 6.8 Norco 0.9 6.8
Riverside 76.2 34.5 Riverside 35.4 28.0
East Region 124.2 104.3 East Region 85.7 81.9
Blythe 5.0 2.1 Blythe 0.8 2.0
Cathedral City 5.3 3.2 Cathedral City 2.0 2.0
Coachella 3.9 1.0 Coachella 0.7 0.8
Desert Hot Springs 1.2 10.2 Desert Hot Springs 1.1 9.2
Indian Wells 21.3 9.7 Indian Wells 3.0 8.5
Indio 9.4 22.2 Indio 4.6 12.4
La Quinta 2.6 6.6 La Quinta 2.6 2.3
Palm Desert 32.8 15.6 Palm Desert 29.7 14.3
Palm Springs 11.0 16.6 Palm Springs 11.0 16.6
Rancho Mirage 28.5 10.8 Rancho Mirage 27.9 9.4
Twentynine Palms 0.8 1.0 Twentynine Palms 0.7 1.0
Yucca Valley 2.5 5.2 Yucca Valley 1.5 3.5
Unincorporated Areas 135.1 77.9 Unincorporated Areas 77.3 38.0
Riverside County 94.8 45.2 Riverside County 67.5 31.0
San Bernardino County 40.3 32.8 San Bernardino County 9.8 7.1
Source: Construction Industry Research Board Source: Construction Industry Research Board
Note: Year to date through July. Note: Year to date through July.

Total Office Property Total Retail Property

Building Permit Values ($ Millions) Building Permit Values ($ Millions)
Location 2013 YTD 2014 YTD Location 2013 YTD 2014 YTD
Colton 0.0 0.2
Fontana 0.2 0.9 Fontana 0.0 5.9
Highland 3.1 0.0 Grand Terrace 0.0 0.9
Loma Linda 0.0 11.5 Highland 0.6 0.0
Montclair 0.0 0.0 Loma Linda 0.9 0.0
Ontario 4.0 0.0 Ontario 19.4 3.5
Rancho Cucamonga 7.9 0.7 Rancho Cucamonga 0.0 69.2
Redlands 5.6 0.0 Redlands 2.9 23.7
Yucaipa 0.4 0.4
Yucaipa 1.7 0.0
Southeast Region 32.3 6.4 Adelanto 0.0 0.8
Beaumont 17.0 0.0 Apple Valley 0.6 0.0
Perris 14.7 0.0 Barstow 0.1 0.6
Temecula 0.6 6.4 Victorville 1.3 0.9
Southwest Region 10.5 0.1 Southeast Region 2.9 23.5

Chino 0.5 0.0 Beaumont 0.0 0.3
Lake Elsinore 0.4 0.0
Eastvale 0.0 0.1
Menifee 0.0 2.2
Riverside 10.0 0.0
Moreno Valley 0.7 19.8
East Region 0.8 5.4 Murrieta 0.4 1.2
Cathedral City 0.7 0.0 Perris 0.2 0.0
Coachella 0.0 0.0 San Jacinto 0.6 0.1
Temecula 0.5 0.0
Indio 0.0 5.4
Unincorporated Areas 0.1 1.5 Chino 14.0 0.0
San Bernardino County 0.1 1.5 Chino Hills 0.0 0.8
Source: Construction Industry Research Board Corona 0.0 3.3
Note: Year to date through July. Eastvale 0.5 0.5
Riverside 15.1 5.4
Blythe 3.7 0.0
Cathedral City 2.6 1.2
Coachella 0.8 0.0
Indio 0.4 1.0
La Quinta 0.0 2.8
Palm Desert 3.1 1.3
Yucca Valley 0.9 1.5
Riverside County 25.7 10.2

Total Industrial Property

Colton 5.5 0.0
Ontario 31.2 4.4
Rancho Cucamonga 2.6 1.0
Apple Valley 0.0 0.5
Beaumont 0.0 0.0
Moreno Valley 0.0 80.0
Murrieta 0.0 0.0
Perris 32.2 0.0
Chino 47.6 0.2
Corona 0.0 4.9
Jurupa Valley 0.0 15.8
Riverside 1.4 0.5
East Region 0.9 0.0
Indio 0.6 0.0
Rancho Mirage 0.3 0.0
Riverside County 1.5 0.0

BEACON ECONOMICS
Demographics and
Quality of Life
by Christian Cruz
Contents
Population 76
Personal and Household Income 78
Education 80
Poverty 82
Crime 83
Appendix: Charts and Tables 84
Demographics and Quality of Life
The Inland Empire is the fastest growing region in all of Southern California, expanding its population by
1.0% over the past year and 18.3% over the past ten years.
From 2012 to 2013, median household income throughout the Inland Empire grew approximately 3.0%.
While educational attainment in the Inland Empire still lags behind the rest of Southern California, the
Inland Empire is experiencing noticeable improvement, with the proportion of residents holding a bach-
elor’s degree or higher increasing to 20.1% in 2013, compared to only 18.8% in 2008.
As a result of a healthier regional economy, the Inland Empire is experiencing a continued decrease in
the proportion of residents living in poverty.
From 2004 to 2012, Riverside and San Bernardino counties experienced the largest decline in both violent
and property crime in Southern California.
Population area. Once again, Beaumont led the way (134.5%), fol-
lowed by Coachella (60.3%) and Lake Elsinore (57.6%).
The Inland Empire is the fastest-growing region in Overall, from 2004 to 2014, the median population in
Southern California. As of January 2014, the Califor- Inland Empire cities has grown 16.3%, to 52,625.
nia Department of Finance reports that the Inland Em-
Population (Indexed)
pire is home to some 4.4 million residents, a 1.0% in- Select Counties and California, 2004 to 2014
crease from January of 2013. Over the last 10 years, 1.2
Indexed (2004 = 1.00)
the population throughout the Inland Empire grew 1.2

by 18.3%, surpassing the statewide average of only 1.1
7.8%. Riverside County’s population grew by 1.1%, 1.1
to reach 2.3 million over the past year, while San 1.1
Bernardino County’s population grew by 0.8%, to 2.1 1.0
million. Both counties have experienced significant 2004 2006 2008 2010 2012 2014
population increases over the past 10 years, with the Riverside San Bernardino
Los Angeles Orange
10-year growth rate in Riverside County (25.7%) ex- San Diego California
ceeding the growth rate in San Bernardino County Source: California Department of Finance
(11.2%).
The City of Riverside (314,034 residents), the City of The Inland Empire is the fastest growing
San Bernardino (212,721), and the City of Fontana region in Southern California.
(202,177) continue to be the largest cities in the Inland
Empire. Together, these cities comprise nearly 17% of
For the most part, the continued population growth in
the total population in the region and provide signifi-
the Inland Empire is being driven by natural increase
cant economic activity. In our last forecast for the In-
(the difference between births and deaths). But this
land Empire, we noted that the City of Beaumont expe-
has not always been the case. Prior to the recession,
rienced the fastest 10-year population growth in the
positive net migration was the primary catalyst for

population growth in the two-county region. In 2004, Natural Increase as Percent of Total Population
75% of total population growth was driven by positive Select Regions, 2003 to 2013
1.2
net migration, but this share slowly declined as the
housing market first stalled and then collapsed.
Percent, Annual
1.0
By 2008, the composition of population growth
changed dramatically. Nearly 80% of total population 0.8
growth stemmed from natural increase. The compo-

0.6
sitional change in population growth can likely be 2003 2005 2007 2009 2011 2013
explained by the widespread nature of the economic Riverside San Bernardino
downturn that affected all of Southern California, the Los Angeles

San Diego
Orange
California
nation, and the world. Unlike the economic downturn Source: California Department of Finance
in the mid-1990s, which was regional in nature and
largely affected defense-driven economies, the Great Although the Inland Empire experienced negative net
Recession was a global downturn. As such, residents in migration in 2013, the region still offers a relatively
the Inland Empire or elsewhere could not escape the affordable cost of living. This is evident in the lower
effects of the recession by moving to another part of housing prices than seen in neighboring Los Ange-
the state or nation, and fewer people migrated. les and Orange Counties. As more prospective home-
The view at Beacon Economics is that this slowdown buyers in both Los Angeles and Orange Counties seek
in overall migration seen across the nation is largely to purchase homes, they are turning toward the In-
cyclical in nature, and we expect to see an uptick in land Empire as a more viable option for homeown-
positive net migration into the Inland Empire as the ership. In addition, the historically strong net migra-
economy heals. Indeed, Riverside County has been one tion patterns in Riverside County should provide a
of the only areas in Southern California, during and sense of optimism for Inland Empire residents, espe-
since the economic downturn, to experience positive cially as growing employment opportunities become
net migration. Moreover, Riverside County has expe- more abundant in the region. Overall, the Inland Em-
rienced positive net migration every year since the pire remains an attractive destination for those seek-
California Department of Finance began tracking net ing affordable housing, growing employment oppor-
migration patterns in 1970. tunities, and access to coastal employment centers.
Fastest Growing Cities in Inland Southern California, 2014

Net Migration as Percent of Total Population
Select Regions, 2003 to 2013 City 2004 2014 Change (%)
4.0 Beaumont 17,431 40,876 134.5
3.0 Coachella 27,214 43,633 60.3
Percent, Annual
Lake Elsinore 35,993 56,718 57.6

2.0
Perris 46,634 72,103 54.6
1.0 San Jacinto 29,734 45,563 53.2
0.0 Victorville 79,081 120,590 52.5
Desert Hot Springs 18,925 28,001 48.0
-1.0
Indio 56,655 82,398 45.4
2003 2005 2007 2009 2011 2013
Adelanto 22,528 32,511 44.3
Riverside San Bernardino Temecula 76,407 106,289 39.1
Los Angeles Orange
San Diego California Source: California Department of Finance
Source: California Department of Finance

Despite the slowdown in recent years, the past decade tial proportion of younger residents. The population
has seen widespread growth in cities across Inland structure in the region is such that approximately
Southern California. The City of Beaumont continues 47.5% of residents are between the ages of 20 and 54,
to lead the way, where the population surged by over and only 23.6% are 55 years or older. Thus, the Inland
134% from 2004 to 2014. The City of Coachella has also Empire has an adequate supply of younger workers to
experienced substantial growth over the last decade replace the aging baby boomer population.
as well, growing by 60.3%. Not far behind in growth are
Lake Elsinore (57.6%), Perris (54.6%), and San Jacinto Inland Empire Population by Age, 2013 (%)
(53.2%). Only three cities in the region have seen de- County Under 5 5-19 20-34 35-54 55-64 65 and Over
clines in their populations over the last decade: Blythe Riverside 6.9 23.0 20.9 25.9 10.5 12.8
(-2,755), Big Bear Lake (-435) and Needles (-116). San Bernardino 6.8 20.4 22.2 26.5 11.7 12.4
Los Angeles 6.4 19.6 23.2 27.8 11.1 11.9
Orange 6.1 20.0 21.4 28.3 11.5 12.8
Largest Cities in Inland Southern California, 2014
San Diego 7.4 23.4 22.7 26.0 10.5 10.0
City 2004 2014 Change (%)
California 6.5 20.3 22.2 27.0 11.5 12.5
Riverside 279,829 314,034 12.2 Source: U.S. Census, 2013 American Community Survey
San Bernardino 198,227 212,721 7.3
Fontana 156,781 202,177 29.0 While the relative youth of residents in the Inland Em-
Moreno Valley 158,634 199,258 25.6 pire can be advantageous in many respects, the large
Rancho Cucamonga 151,873 172,299 13.4
proportion of school-age children throughout the re-
Ontario 163,956 167,382 2.1
Corona 144,084 159,132 10.4 gion can be of concern with respect to the local bud-
Victorville 79,081 120,590 52.5 get, primarily for education. Recently, much of the re-
Murrieta 79,185 106,425 34.4 gion’s population growth has been driven primarily
Temecula 76,407 106,289 39.1
through natural increase, which means that the pro-
portion of school-age children is likely to grow.
The City of Riverside remains Inland Southern Cal-

ifornia’s largest city with a population of 314,034.
Personal and Household Income
Next is the City of San Bernardino (212,721), followed
by Fontana (202,177), Moreno Valley (199,258), and
Rancho Cucamonga (172,299). The region now boasts Growth in total personal income in the Inland Em-
three cities with populations greater than 200,000, in pire has been among the best in the State of Califor-
2003 only the City of Riverside held this distinction. nia. From 2011 to 2012, total personal income climbed
Similarly, in 2003 Inland Southern California only had in both Riverside County (3.6%) and San Bernardino
seven cities with populations over 100,000. Today, that County (3.9%). Over the past 10 years, total personal
number stands at eleven, with cities like Jurupa Valley income in Riverside and San Bernardino Counties
(97,246) poised to join the group in the coming years. grew by 64.1% and 50.4%, respectively—the highest
growth rates in Southern California.
A region’s economy is only as strong as its labor force.
Throughout the country, the aging baby boomer pop-
ulation and their imminent departure from the la-
bor force can spell disaster for regions whose labor
force typically consists of a larger proportion of baby
boomers and residents planning to retire. Luckily,
the Inland Empire’s population comprises a substan-

Personal Income Growth Per Capita Personal Income Growth

Select Counties and California, 2002 to 2012 Select Counties and California, 2002 to 2012
140
160
Index (2002 = 100)
Index (2002 = 100)

130
140
120
120
110
100 100
2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012
Riverside San Bernardino Riverside San Bernardino

Los Angeles Orange Los Angeles Orange
San Diego California San Diego California
Source: U.S. Bureau of Economic Analysis Source: U.S. Bureau of Economic Analysis
While Riverside and San Bernardino Counties have The median household income in most Inland Empire
both experienced significant growth in total personal cities fell. From 2012 to 2013, median household in-
income over the last 10 years, the increased popula- comes slipped in all but five of the Inland Empire’s
tion within the region can likely explain this occur- cities (whose populations are at least 50,000). The
rence. A more salient measure of economic progress City of Hemet experienced the largest drop in me-
would be to examine per capita personal income dian household income (falling by 19.4%, to $35,024),
growth. In 2012, per capita income in Riverside and while the City of Apple Valley experienced the largest
San Bernardino Counties grew by 2.1% and 3.1%, re- increase in median household income (surging by
spectively, lagging behind per capita income growth 18.5 %, to $48,734). The remaining cities that experi-
in the rest of Southern California and the state. Over enced median household income growth were Perris,
the last 10 years, despite growth in per capita per- Rancho Cucamonga, Indio, and Fontana. The City of
sonal income of 22% in Riverside County and 30.1% in Rancho Cucamonga, whose median household income
San Bernardino County, per capita income growth in grew by 6.7% over the last year, should provide a pos-
these counties still lagged the 10-year growth rate in itive indication as to the economic trajectory of the
the rest of Southern California and the state. Thus, the Inland Empire. Rancho Cucamonga is home to many
Inland Empire still has a little bit of ground to make professional businesses and a growing logistics sector.
up. With many opportunities for growth on the hori- Increased household income growth in this city bodes
zon, however, the Inland Empire should be poised to well for the IE, as this is a clear indication that the re-
catch up to its neighboring counties and the state. gion is producing higher wage employment opportu-
nities.
In one effort to spur growth, the City of Fontana re-
cently launched the Greater Fontana Hispanic Cham- The wide range in value between the highest median
ber of Commerce (GFHCC) to capitalize on the major- household income (Chino Hills, at $94,826) and the
ity Hispanic demographic in the city. The purpose of lowest median household income (Hemet, at $35,024)
the GFHCC is to facilitate growth for local area busi- suggests significant income inequality, but in fact the
nesses in the form of education, guidance, and sup- Inland Empire has a lower level of income equality
port. The GFHCC aims to help these small businesses than the rest of Southern California and the state
expand into other markets.45 overall. In 2013, Riverside and San Bernardino Coun-
45 ties both posted Gini coefficients under 0.45, whereas
Alejandro Cano, “New Hispanic Chamber of Commerce Is Cre-
ated in Fontana,” Fontana Herald News, September 11, 2014.

the remaining Southern California counties and the the Inland Empire’s population. While many economic
state had Gini coefficients above 0.47.46 factors can explain the origin of this gap, education
Gini Index of Income Inequality, Select Regions seems to play a key role in determining income levels.
Riverside San Bern. Los Angeles Orange San Diego
Year California Personal Income by City, 2012 & 2013
County County County County County
2013 0.450 0.446 0.505 0.472 0.479 0.490 Yearly Earnings ($)
2012 0.440 0.439 0.497 0.464 0.467 0.482 City
2008 0.434 0.431 0.498 0.460 0.455 0.473 2013 2012 Chg (%)
Source: U.S. Census, 2008/2012/2013 Amer. Community Survey
Apple Valley 48,734 41,113 18.5
The relatively low Gini coefficient in both Riverside Chino 71,457 71,671 -0.3
and San Bernardino can likely be explained by the fact Chino Hills 94,826 97,065 -2.3
that the Inland Empire has a significantly higher pro- Fontana 64,679 64,195 0.8
Hemet 35,024 43,443 -19.4
portion of low-skilled workers whose incomes do not
Hesperia 42,990 46,027 -6.6
vary widely. We do, however, notice that the Gini coef-
Indio 51,202 50,528 1.3
ficient has steadily increased since 2008, which is con- Moreno Valley 52,625 55,872 -5.8
sistent with the growth in income inequality across Murrieta city 72,385 75,485 -4.1
Southern California. Ontario 51,230 54,994 -6.8
Perris 50,035 46,435 7.8
Looking at household income by ethnicity, we see that Rancho Cucamonga 82,489 77,329 6.7
household incomes for Hispanics and African Amer- Redlands 61,972 66,901 -7.4
icans significantly lag behind those of whites and Rialto 49,269 49,428 -0.3
Asians. In 2013, the median household income for His- Riverside 54,300 56,403 -3.7
panics in Riverside and San Bernardino Counties was San Bernardino 37,440 39,097 -4.2
$47,389 and $47,029, respectively; this is, on average, Temecula 78,165 78,668 -0.6
Upland 56,782 64,797 -12.4
21.3% lower than incomes for whites and 27.0% lower
Victorville 42,765 52,165 -18.0
than incomes for Asians.
Source: U.S. Census, 2012/2013 Amer. Com'ty Survey
The Inland Empire has a lower level of

income equality than the rest of Southern Education
California and the state overall.
The occupational landscape has changed over the last
decade, and education is more important than ever
Over the last year, Hispanics and African Americans
as a means of alleviating poverty and spurring in-
in the Inland Empire did experience an increase in
come growth. According to the California Department
household income. From 2012 to 2013, the median
of Education (CDE), public school enrollment growth
household income for Hispanics and African Ameri-
in Riverside and San Bernardino Counties is the high-
cans grew by 3.0% and 0.7%, respectively. However,
est in all of Southern California and the state. The
household income growth for both whites and Asians
increase in enrollment stems in part from increased
during the same time period was near 5%. These in-
migration to these counties, mainly by lower-income
come gaps are critical for overall income growth in the
families, over the last decade. While the growth in
region, since Hispanics make up a large proportion of
public school enrollment is a positive sign, there is
46 clearly more to be done to boost educational out-
The Gini coefficient is a measure of income inequality for a
given region. A Gini coefficient of 1.00 represents perfect income comes. While CDE graduation rate statistics show that
inequality, and a coefficient of 0.00 represents perfect equality.

Riverside and San Bernardino Counties are on par or less. These proportions far exceed the state average
with the rest of Southern California, even surpassing of 39%. This has important implications—those with
the state average, Riverside and San Bernardino Coun- only a high school diploma or less will earn, on av-
ties rank at or near the bottom in the remaining major erage, between $20,000 to $30,000 annually in the In-
statistics used to measure educational performance land Empire. However, it is encouraging that educa-
(e.g., SAT scores, and math/ELA proficiency scores). tional attainment has improved over time. Although
the counties of Riverside and San Bernardino main-
Public High School Enrollment
Selected Counties and California, 2003-2013
tain roughly the same education gap with the state
140 in relative terms, the proportion of local residents
with a bachelor’s degree or higher has increased,
Index (2003 = 100)
130
from just 18.8% (average between Riverside and San
120
Bernardino) of the population in 2005 to 20.1% in 2013.
110
100
The proportion of Inland Empire residents
2003 2005 2007 2009 2011 2013 with a bachelor's degree or higher has
Riverside San Bernardino increased from 18.8% in 2005 to 20.1% in
Los Angeles
San Diego
Orange
California 2013.
Source: California Department of Education
% of Pop. with a Bachelor's Degree or Higher

Historically, the Inland Empire has suffered from County 2013 2005 % Change
achievement gaps amongst its schools relative to
Riverside 21.0 20.2 4.0
other regions of Southern California. This is an alarm- San Bernardino 19.0 17.4 9.2
ing trend, as these statistics serve as indicators as to Los Angeles 30.1 27.6 9.1
whether or not high school students are adequately Orange 37.1 34.9 6.3
prepared for college. However, from 2003 to 2013, San Diego 34.6 36.3 -4.7
California 31.0 29.5 5.1
both Riverside and San Bernardino Counties have seen
Source: U.S. Census, 2013 American Community Survey
a larger share of students proficient in both mathe-
matics and English Language Arts. In addition, grad- The advantage of a college degree is evident in
uation rates in the Inland Empire are increasing at the “wage premium” associated with higher educa-
a slow, yet steady pace and are on par with the rest tion—the wage premium is the annual earnings differ-
of Southern California—even surpassing the average ence between those with a bachelor’s degree and those
graduation rate for state overall. While this is promis- with only a high school diploma. Those who have a
ing, Riverside and San Bernardino still lag behind the bachelor’s degree in Riverside and San Bernardino will
rest of the region and the state in key measures. As earn, on average, approximately $20,000 more annu-
such, the proficiency gap between the Inland Empire ally than those who have only a high school diploma.
and the rest of Southern California is of concern and
A region’s economy is driven by its workforce, and the
should be a primary focus as a means of poverty alle-
more educated the workforce is, the higher their an-
viation and fostering future income growth.
nual earnings will be. These earnings in turn tend to be
Overall, Census Bureau statistics show that just under correlated with increased spending activity. Thus, it is
half of the residents of Riverside County (46%) and San important to continue to focus on improving educa-
Bernardino County (47%) have a high school diploma tion for primary and secondary students, giving them

Population by Educational Attainment, Select Regions (%)

Educational Riverside San Bern. Los Angeles Orange San Diego
California
Attainment County County County County County
Less than HS Diploma 19.8 21.2 23.1 15.8 14.5 18.3
HS Diploma or GED 25.9 25.9 20.4 18.0 19.6 20.8
Some College or Assoc. Degree 33.4 33.8 26.4 29.0 31.3 29.9
Bachelor's Degree 13.5 12.2 19.7 24.1 21.2 19.5
Graduate or Professional Degree 7.5 6.8 10.4 13.0 13.4 11.5
the confidence and necessary preparation for college- County (by 2.8%) and San Bernardino County (6.4%).
level coursework. Riverside’s poverty rate dropped to 17.3%, and San
Bernardino’s was only slightly higher at 19.1%. The
In an effort to bridge the educational attainment gap
lower poverty rates in 2013 are reflective of a more
in the Inland Empire, several initiatives are taking
robust Inland Empire economy, with increases in the
place that will help increase the number of college-
last year in spending and job creation. Home prices are
bound students. One such initiative involves local
also on the rise, which has led to many more construc-
members of AmeriCorps, a civil society program sup-
tion projects taking place throughout the region. Al-
ported by the U.S. federal government. Through the
though poverty rates in the Inland Empire continue to
collaborative efforts of AmeriCorps members and In-
improve, many residents remain at risk of falling be-
land Empire United Way, this initiative will focus on
low the poverty threshold. Moreover, the Inland Em-
assisting Inland Empire youth toward academic suc-
pire still has the highest poverty rate in Southern Cal-
cess with help from skilled volunteers.47 In addition,
ifornia.
the Chaffey Joint Union High School District is under-
taking several endeavors to help students in pursuit
of higher education with the aim of furthering their The lower poverty rates in 2013 are reflective
career prospects. For example, the school district is of a more robust Inland Empire economy.
partnering with local businesses to help prepare stu-
dents for college by providing knowledge of the work- As noted, educational attainment is the strongest de-
ing world and opportunities for work experience.48 terminant of income. As such, educational attainment
is also inversely correlated with poverty and unem-
ployment rates. This can be seen through the most
Poverty recent Census Bureau statistics, which show that, on
average, roughly 25% of Inland Empire residents who
Poverty rates in the Inland Empire have fallen have less than a high school diploma are living below
since last year. According to 2013 Census Bureau the poverty threshold, compared with only 5.5% for
data, poverty rates have declined in both Riverside those who have a bachelor’s degree or higher. This gap
is consistent with the gap in other Southern California
47
Michel Nolan, “Inland Empire United Way’s AmeriCorps Aims counties and in the state overall.
to Increase Number of College-Bound Students,” San Bernardino
Sun, August 27, 2014. Similarly, the higher the level of education, the lower
48
Neil Nisperos, “Chaffey Joint Union High School District Part-
ners with Area Businesses,” Inland Valley Daily Bulletin, September
the unemployment rate among residents in that edu-
24, 2014. cational cohort. The two Inland Empire counties, on

average, show an unemployment rate of 5.5% for res-

idents who hold a bachelor’s degree or higher, com-
From 2004 to 2012, violent crime declined in
both Riverside and San Bernardino Counties.
pared with an unemployment rate of 13.5% for those
with less than a high school diploma. Unfortunately,
having a high school diploma is no longer enough to cites are showing a downward trend in the number
assure a decent standard of living. The most effec- of crimes committed. Even in cities with large popu-
tive way for residents to climb out of poverty and lations, like Riverside and San Bernardino, both vio-
avoid joining the ranks of the unemployed is through lent crime and property crime have dramatically im-
increased levels of educational attainment. Thus, it proved since 2008. Despite this improvement, there
is important to stress the importance of higher ed- are still significant disparities between high-crime ar-
ucation, especially as we see increased hiring in the eas and low-crime areas. In the City of Indian Wells,
Professional Services sector, a sector that tradition- for instance, there were only 39.1 violent crimes per
ally supports high-wage positions that often require 100,000 residents, compared with 1,231.7 in the City
a bachelor’s degree or higher. of Desert Hot Springs. But the overall trend indicates
that the Inland Empire is continuing to bolster its rep-
Crime
utation as a region of economic opportunity with a
high quality of life for all of its residents.
The quality of life in the Inland Empire has improved
by another measure: crime has been falling in the re- Violent Crime (Indexed)
gion. From 2004 to 2012, violent crime declined in both Select Counties, 2004 to 2012
1.20
Riverside and San Bernardino Counties. Indeed, River-
Violent Crime (2004 = 1.00)
side County experienced the largest decline in violent 1.00

crime in Southern California. This is significant, given 0.80
the relatively high poverty rate in Riverside County
0.60
compared to the rest of Southern California. It is gen-
erally the case that poverty and crime go hand-in- 0.40
2004 2006 2008 2010 2012
hand. Given that the Inland Empire was one of the
hardest hit regions during the recession, it is encour- Los Angeles Orange
aging to see such a dramatic drop in violent crime over San Diego
Source: U.S. Federal Bureau of Investigation
this period.
Regarding property crime, Riverside County likewise Property Crime (Indexed)
experienced a larger drop than other counties in Select Counties, 2004 to 2012
1.10
Property Crime (2004 = 1.00)
Southern California. From 2004 to 2012, property

1.00
crime in Riverside County fell by 42.2%, whereas San
0.90
Bernardino County experienced a smaller drop of
0.80
15.6%. The downturn in overall crime in the Inland
Empire has much to do with the strengthening econ- 0.70
omy, since better employment prospects reduce the 0.60

2004 2006 2008 2010 2012
financial incentive to commit crimes.
Los Angeles Orange
At the city level, the number of violent and prop- San Diego
erty crimes per 100,000 residents varies, but most Source: U.S. Federal Bureau of Investigation

Appendix: Charts and Tables
Population Characteristics, 2013

California
Foreign Born (%) 21.7 20.8 34.6 29.7 23.7 26.9
Naturalized of the Foreign Born (%) 45.3 47.6 48.6 52.1 47.8 48.6
Homeownership Rate (%) 63.8 59.9 45.5 57.5 52.8 53.8

Occupied Units (%) 85.5 85.9 93.8 94.7 92.9 91.7
Renter-Occupied (%) 36.2 40.1 54.5 42.5 47.2 46.2
Vacancy Rate (%) 14.5 14.1 6.2 5.3 7.1 8.3
Household Size (Persons Per Household):

Total 3.3 3.4 3.0 3.1 2.9 3.0
Owner-Occupied 3.2 3.4 3.2 3.0 2.8 3.0
Renter-Occupied 3.4 3.3 2.9 3.1 2.9 2.9
Transportation to Work (%):

Drive Alone 76.0 77.8 72.7 78.3 75.8 73.2
Carpool 14.0 12.7 10.0 9.8 9.6 10.9
Public Transit 1.4 1.5 6.9 2.5 3.2 5.3
Motorcycle, Bicycle, Taxi 1.8 1.5 2.4 2.5 1.9 2.6
Walk 1.5 1.8 2.8 2.0 3.1 2.7
Work at Home 5.3 4.7 5.2 5.0 6.4 5.2
Source: U.S. Census Bureau, American Community Survey

Income Levels and Poverty, 2013

California
Median Household Income ($) 54,095 52,323 54,529 74,163 61,426 60,190
Number of Households 693,585 604,090 3,247,705 1,003,790 1,093,386 12,650,592
Under $25,000 (%) 22.0 23.1 24.0 16.1 19.5 21.2
$25,000-$49,999 (%) 24.0 24.7 22.1 18.2 21.7 21.4
$50,000-$74,999 (%) 18.7 18.8 16.7 16.1 17.2 16.8
$75,000-$99,999 (%) 12.0 12.4 11.6 13.0 12.3 11.9
$100,000-$149,999 (%) 14.1 13.2 13.2 17.4 15.3 14.5
$150,000-$199,999 (%) 5.2 4.4 5.6 8.6 6.9 6.6
Over $200,000 (%) 4.1 3.5 6.8 10.5 7.2 7.7
Gini Index (0-1) 0.4497 0.4461 0.5047 0.4717 0.4789 0.4903
Poverty Rate (%) 17.3 19.1 18.9 13.5 11.3 16.8
Source: U.S. Census Bureau, 2013 American Community Survey
Percentage of Population in Poverty by Educational Attainment, 2013 (%)

California
HS Diploma or GED 16.3 16.4 17.6 12.6 15.3 16.0
Bachelor's Degree or Higher 5.3 6.0 7.1 5.1 6.0 5.7
Population by Ethnicity, 2013 (%)

% of Population California
Hispanic/Latino 46.5 50.5 48.2 34.1 32.7 38.2
White 38.4 31.9 27.1 42.8 47.5 39.2
Black/Afr. American 5.9 8.4 8.0 1.4 4.8 5.7
Asian 5.7 6.4 13.7 18.5 11.2 13.3
Two or More Races 2.5 1.8 2.2 2.4 2.8 2.7
Amer. Indian/Alaska Native 0.5 0.5 0.2 0.2 0.4 0.4
Native Hawaiian/Pac. Islander 0.3 0.3 0.2 0.3 0.5 0.4
Some Other Race 0.1 0.2 0.3 0.2 0.1 0.2
Source: U.S. Census Bureau, 2013 American Community Survey

Yearly Household Income by Race/Ethnicity, 2013 ($)

Race/Ethnicity California
Hispanic or Latino 47,389 47,029 43,352 52,765 46,875 45,800
White 61,081 58,936 73,081 85,769 70,302 70,786
Asian 70,379 74,892 64,932 76,158 76,321 76,535
Black/Afr. American 47,195 41,495 40,042 65,506 46,650 40,856
Two or More Races 55,076 60,748 60,427 67,435 55,025 57,836
Some Other Race 45,125 45,763 40,036 49,651 45,877 43,390
Nat. Hawaiian/Pac. Islander 59,145 39,982 61,235 76,277 53,084 58,293
Am. Indian/Alaska Native 39,755 43,483 45,144 46,719 53,750 44,879
Yearly Personal Income by Educational Attainment, 2013 ($)

California
Less than HS Diploma 20,822 20,342 17,768 19,105 21,303 19,057
HS Diploma or GED 27,398 29,099 25,452 28,974 29,425 27,262
Some College or Assoc. Degree 35,761 35,850 34,358 39,729 35,477 35,888
Bachelor's Degree 49,830 48,411 50,492 59,552 53,348 54,931
Graduate or Prof. Degree 69,708 64,754 71,521 84,420 74,512 77,093
Unemployment Rate by Educational Attainment, 2013 (%)

California
HS Diploma or GED 13.8 11.4 10.8 8.4 9.7 11.0
Bachelor's Degree or Higher 5.2 5.8 5.9 4.6 5.6 5.2

Per Capita Personal Income High School Graduation Rates

Select Counties and California, 2002 to 2012 Selected Counties and California, 2009 to 2013
90
50,000
Graduation Rate (%)

85
40,000
Dollars
80
30,000
75
20,000 70
2002 2004 2006 2008 2010 2012 2009 2010 2011 2012 2013
Source: U.S. Bureau of Economic Analysis Source: California Department of Education
English-Language Arts Proficient Students Math Proficient Students

Selected Counties and California, 2003 to 2013 Selected Counties and California, 2003 to 2013
Percentage of Students Math-Proficient

Percentage of Students ELA-Proficient
70 70
60 60
50 50
40 40
30 30
2003 2005 2007 2009 2011 2013 2003 2005 2007 2009 2011 2013

Source: California Department of Education Source: California Department of Education
SAT Verbal Scores SAT Math Scores

Selected Counties and California, 2003-2013 Selected Counties in California, 2003-2013
540 560
Average Verbal Score
540
Average Math Score
520
520
500
500
480
480
460 460
2003 2005 2007 2009 2011 2013 2003 2005 2007 2009 2011 2013

Source: California Department of Education Source: California Department of Education

City Population Growth in the Inland Empire

CalFresh Applications Approved (Indexed)
Select Regions, Q2-04 to Q2-14 City 2004 2014 Change (%)
Applications (Q2-04 = 1.00)
6.0 Riverside 279,829 314,034 12.2

5.0 San Bernardino 198,227 212,721 7.3
Fontana 156,781 202,177 29.0
4.0
Moreno Valley 158,634 199,258 25.6
3.0 Rancho Cucamonga 151,873 172,299 13.4
2.0
Ontario 163,956 167,382 2.1
Corona 144,084 159,132 10.4
1.0 Victorville 79,081 120,590 52.5
Q1-04 Q3-06 Q1-09 Q3-11 Q1-14
Murrieta 79,185 106,425 34.4
Riverside County San Bernardino County
Temecula 76,407 106,289 39.1
Los Angeles County Orange County
San Diego County California Rialto 97,704 101,429 3.8
Source: CA Department of Social Services Jurupa Valley N/A 97,774 N/A
Hesperia 70,956 91,506 29.0
Menifee N/A 83,716 N/A
CalWorks Applications Approved (Indexed)
Applications (Q2-04 = 1.00), Smoothed
Indio 56,655 82,398 45.4

Select Regions, Q2-04 to Q2-14
2.5 Chino 73,163 81,747 11.7
Hemet 66,751 81,537 22.2
2.0 Chino Hills 74,809 76,131 1.8
Upland 71,831 75,147 4.6
1.5 Perris 46,634 72,103 54.6
Apple Valley 61,005 70,755 16.0
1.0
Redlands 67,641 69,882 3.3
0.5 Eastvale N/A 59,185 N/A
Q1-04 Q3-06 Q1-09 Q3-11 Q1-14 Lake Elsinore 35,993 56,718 57.6
Riverside County San Bernardino County Highland 49,483 54,033 9.2
Los Angeles County Orange County Colton 50,908 53,057 4.2
San Diego County California Yucaipa 46,789 52,654 12.5
Source: CA Department of Social Services Cathedral City 48,529 52,595 8.4
Palm Desert 43,899 50,417 14.8
Palm Springs 43,441 46,135 6.2
Highest- and Lowest-Crime Cities, Inland Empire, 2012 San Jacinto 29,734 45,563 53.2
Coachella 27,214 43,633 60.3
Violent Crimes Property Crimes Beaumont 17,431 40,876 134.5
City
Per 100K Residents Per 100K Residents La Quinta 30,110 39,032 29.6
Indian Wells 39.1 3,964.8 Montclair 34,398 37,374 8.7
Wildomar N/A 33,718 N/A
Murrieta 65.5 1,605.2
Adelanto 22,528 32,511 44.3
Chino Hills 83.5 1,247.5 Banning 27,813 30,325 9.0
Temecula 93.8 2,359.4 Desert Hot Springs 18,925 28,001 48.0
Canyon Lake 100.9 1,916.6 Norco 25,624 26,582 3.7
Twentynine Palms 24,083 26,576 10.4
Palm Springs 656.6 4,852.6 Loma Linda 21,139 23,614 11.7
Big Bear Lake 817.0 6,088.3 Barstow 22,554 23,292 3.3
Barstow 892.7 3,635.5 Yucca Valley 18,504 21,053 13.8
San Bernardino 940.5 4,888.7 Blythe 21,747 18,992 -12.7
Desert Hot Springs 1,231.7 4,142.6 Rancho Mirage 15,653 17,745 13.4
Grand Terrace 11,976 12,285 2.6
Source: U.S. Federal Bureau of Investigation Canyon Lake 10,532 10,826 2.8
Calimesa 7,579 8,231 8.6
Indian Wells 4,413 5,137 16.4
Big Bear Lake 5,556 5,121 -7.8
Needles 5,024 4,908 -2.3
Violent and Property Crime by City, Inland Empire

Violent Crimes Per 100,000 Residents Property Crimes Per 100,000 Residents
City
2012 2011 2010 2009 2008 2012 2011 2010 2009 2008
Adelanto 611.9 510.3 814.9 905.3 633.3 2,841.3 2,753.7 2,444.7 2,652.7 2,813.7
Apple Valley 312.0 224.5 261.7 368.4 465.6 2,646.0 2,790.6 2,629.7 2,443.2 2,467.2
Banning 484.6 530.9 524.3 544.5 556.7 2,318.2 2,370.5 1,846.9 1,927.8 2,488.6
Barstow 892.7 807.7 769.1 999.1 1,359.2 3,635.5 3,588.7 3,145.2 3,637.9 5,344.4
Beaumont 270.5 238.5 232.6 231.0 210.5 3,524.9 2,626.6 2,088.3 2,437.5 2,370.8
Big Bear Lake 817.0 531.7 451.0 660.2 659.0 6,088.3 5,218.6 4,074.7 6,006.4 4,725.2
Blythe 342.4 327.6 360.4 315.9 269.1 3,559.5 3,299.8 2,831.7 2,884.5 2,547.5
Calimesa 159.8 125.4 237.0 320.1 187.6 2,482.8 1,994.5 2,185.9 2,254.2 2,559.6
Canyon Lake 100.9 196.5 88.2 105.4 52.6 1,916.6 2,105.8 1,967.4 1,159.2 1,463.1
Cathedral City 385.9 436.3 465.9 381.3 449.6 2,981.1 3,442.0 2,815.8 2,293.6 3,046.6
Chino 364.7 313.1 313.7 199.7 235.2 2,651.9 2,626.1 2,386.8 2,507.5 2,738.9
Chino Hills 83.5 89.9 107.4 135.3 89.0 1,247.5 1,292.3 1,312.4 1,488.3 1,597.7
Coachella 630.4 670.2 454.3 609.1 514.7 3,680.4 4,120.6 3,820.6 3,234.4 3,989.7
Colton 353.7 358.2 335.3 437.0 525.6 3,569.1 2,952.6 3,114.0 3,350.2 3,566.1
Corona 133.5 129.7 129.8 140.4 184.7 2,633.1 2,175.6 2,306.4 2,499.4 2,671.8
Desert Hot Springs 1,231.7 1,272.7 1,477.7 1,274.6 1,236.7 4,142.6 5,574.8 5,452.6 5,907.7 6,163.9
Fontana 423.2 363.0 394.1 451.4 458.6 2,237.2 2,134.9 1,911.3 2,307.4 2,362.4
Grand Terrace 235.1 139.6 163.5 195.7 226.9 2,310.9 1,953.7 2,272.5 1,875.1 2,139.6
Hemet 499.9 453.6 504.7 516.5 594.8 4,292.4 4,362.8 3,948.8 3,923.1 4,674.8
Hesperia 435.1 343.1 322.9 326.2 318.5 2,708.3 2,465.1 2,159.2 1,881.8 2,339.8
Highland 544.1 439.2 468.8 501.5 452.3 2,970.4 2,711.8 2,890.2 2,445.7 2,527.9
Indian Wells 39.1 — 75.0 56.4 19.0 3,964.8 3,010.4 3,320.2 3,193.7 4,022.8
Indio 573.2 558.9 505.5 478.4 435.8 3,555.4 3,392.7 3,045.0 3,153.4 3,159.2
La Quinta 387.7 496.0 288.8 262.8 436.2 4,313.8 3,767.1 2,715.0 3,360.8 3,375.4
Lake Elsinore 241.1 232.7 199.9 252.6 320.3 3,583.6 3,072.7 2,908.3 3,047.8 3,297.0
Loma Linda 180.5 225.2 127.9 214.8 195.2 2,628.2 2,269.1 2,530.1 2,861.3 2,683.4
Montclair 524.6 514.9 473.9 554.1 614.0 4,534.6 4,566.7 4,798.9 5,730.7 6,096.7
Moreno Valley 353.6 374.2 367.0 467.2 553.0 3,190.7 2,945.2 2,646.8 3,022.6 3,201.7
Murrieta 65.5 100.3 94.9 112.1 84.2 1,605.2 1,428.1 1,348.4 1,433.9 1,430.0
Needles 463.4 265.3 355.9 699.6 411.7 4,291.8 4,040.0 4,739.6 4,499.9 3,836.1
Norco 201.1 124.2 153.6 200.5 212.8 2,082.6 2,370.3 2,505.7 2,547.1 2,803.3
Ontario 318.0 297.3 364.6 422.6 511.2 3,010.7 2,929.1 2,845.8 2,970.9 3,167.9
Palm Desert 207.9 155.1 91.2 85.2 124.1 4,642.1 4,380.3 3,631.4 3,732.3 5,085.7
Palm Springs 656.6 567.9 579.1 611.9 749.6 4,852.6 5,111.4 4,051.7 4,864.3 5,502.7
Perris 339.9 241.4 272.9 322.1 456.6 2,946.9 3,069.8 2,959.6 3,226.4 3,405.9
Rancho Cucamonga 189.6 175.2 192.4 193.6 224.0 2,576.9 2,341.3 2,095.8 2,131.0 2,158.7
Rancho Mirage 129.4 109.1 99.0 99.2 81.3 4,083.7 4,150.4 3,231.4 3,524.5 5,214.9
Redlands 313.9 283.2 344.4 331.2 357.7 4,250.1 3,768.2 3,594.5 3,514.8 3,917.7
Rialto 501.0 478.4 500.8 545.3 560.9 3,514.9 2,968.0 2,584.9 2,879.7 2,244.6
Riverside 443.0 426.1 479.7 511.9 642.0 3,450.4 3,132.6 3,300.5 3,198.0 3,693.9
San Bernardino 940.5 876.2 815.2 955.5 1,033.8 4,888.7 3,983.7 4,501.2 4,629.8 4,704.5
San Jacinto 300.2 263.9 272.0 404.0 409.1 3,240.8 3,269.3 3,453.1 3,468.2 3,834.0
Temecula 93.8 93.8 72.2 124.8 153.0 2,359.4 2,375.7 2,294.2 2,348.3 2,465.0
Twentynine Palms 316.3 311.7 348.3 334.5 340.8 1,807.7 2,063.8 1,513.2 1,678.3 1,879.2
Upland 195.9 245.3 283.6 — 345.5 3,082.2 2,967.9 3,215.1 — 3,639.2
Victorville 569.6 585.0 581.8 668.4 597.5 3,762.0 3,352.2 3,138.6 3,362.4 3,663.9
Yucaipa 226.1 227.0 272.9 252.1 162.1 1,793.9 1,731.7 1,580.3 2,028.3 1,832.0
Yucca Valley 424.4 434.5 501.3 399.1 336.3 2,641.0 2,716.9 2,545.1 2,740.6 3,127.7
Source: U.S. Federal Bureau of Investigation
City of Desert Hot Springs data skewed by small population

Data Sources
Data Sources
The creation of this report would not have been possible without numerous public and private sources of data.
We would like to acknowledge those sources here.
Bureau of Transportation Statistics Grubb & Ellis
California Air Resource Board Hanley Wood Market Intelligence
California Association of Realtors HousingTracker.net
California Board of Equalization Marcus & Millichap
California Dept. of Education Mortgage Bankers Association
California Dept. of Finance National Science Foundation
California Dept. of Justice NOAA National Weather Service
California Employment Development Dept. Pricewaterhouse Coopers
California New Car Dealers Association Property & Portfolio Research
California State Controller RealFacts
California State Franchise Tax Board Research and Development (RAND)
California State Legislative Analyst's Office S&P Case Shiller
CalTax.org U.S. Census Bureau, American Community Survey
CB Richard Ellis U.S. Census Bureau, Longitudinal Employment - Hous-

ing Dynamics
Construction Industry Research Board
U.S. Dept. of Commerce, Bureau of Economic Analysis
CoStarr/The London Group
U.S. Dept. of Labor, Bureau of Labor Statistics
DataQuick Information Systems
U.S. Dept. of Transp., Research and Innovative Tech-
Environmental Protection Agency nology Administration
Federal Reseserve Economic Database (FRED) WISERTrade.org

Acknowledgments
Acknowledgments
Research Staff/Chapter Authors
Christoper Thornberg, Founding Partner (Beacon Economics)

Jordan Levine, Economist and Director of Economic Research (Beacon Economics)
Dustin Schrader, Public Policy Manager (Beacon Economics)
Rafael De Anda, Research Project Manager (Beacon Economics)
Brian Vanderplas, Senior Research Associate (Beacon Economics)
Christian Cruz, Research Associate (Beacon Economics)
Maximilian Saia, Research Associate (Beacon Economics)
Alan Hooper, Research Associate (Beacon Economics)
Document Format and Editing
Bettina Nicely Johnson, Copy Editor
Cover Design
Christopher Canlas, Beacon Economics
Print Production
Copyland Printers, Inc.
Conference Coordination/Management
Simone Horng, Beacon Economics

Marsha Fowles, University of California at Riverside

About Beacon Economics
About Beacon Economics

Beacon Economics, LLC is one of California’s leading economic research and consulting firms, specializing in
economic and revenue forecasting, economic impact analysis, economic policy analysis, regional economic
analysis, real estate market and industry analysis, and EB-5 Visa analysis. Known for delivering independent and
rigorous analysis, we strive to give our clients an understanding of economic trends and data that help
strengthen strategic decision making about investment, revenue, and policy.
Services Contact
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Business, Industry, & Market Analysis Managing Partner
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Ports & Infrastructure Analysis Sherif@BeaconEcon.com
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2014

Volume 7 Number 1 October 2014

This publication was prepared by:

Christopher Thornberg, Founding Partner Jordan G. Levine, Economist

Victoria Pike Bond

Or visit our website at www.BeaconEcon.com.

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Inland Empire Forecast 19

Residential Real Estate 47

Commercial Real Estate 57

Demographics and Quality of Life 75

Zero To Hero growing momentum will be driven by improving fun-

2 2014 Riverside/San Bernardino Economic Forecast

2014 Riverside/San Bernardino Economic Forecast 3

Year-Over-Year Growth (%)

jectory. The labor markets may start to look ‘normal’ 0

Construction is one of the big shortfalls in the U.S.

economy (as noted in past years’ reports). Prior to the

downturn, close to 8% of U.S. GDP went to residential

Jan-04 Jan-06 Jan-08 Jan-10

4 2014 Riverside/San Bernardino Economic Forecast

6,000 equipment or intellectual property as a share of U.S.

2014 Riverside/San Bernardino Economic Forecast 5

Public Investments (% of GDP)

6 2014 Riverside/San Bernardino Economic Forecast

110 been overestimated by quite a bit—and anticipation

suggest the Federal Reserve will start backtracking on

on exports. Still, the good news is that ongoing growth

Outstanding Bank Balances Excess Reserves

On Policy and Prices...

2014 Riverside/San Bernardino Economic Forecast 7

ting in excess reserves. And the Federal Reserve can

Money Supply (M2)

The only real fear is that the Federal Reserve start

8 2014 Riverside/San Bernardino Economic Forecast

Nonfarm Employment Growth, 2013 to Current

Growth (% Year-over-Year, SA)

Labor Markets: Employment in the state is growing 1.0

10 2014 Riverside/San Bernardino Economic Forecast

Median Prices ($000s, SA)

revenues have improved tremendously. With the pas- 400

sage of Proposition 30, which raised income and sales 10 350

taxes, General Fund receipts are up by more than 18% 300

tures, resulting in a $1.9 billion positive balance in the Inventory Prices

Source: California State Controller's Office

Residential Real Estate: After precipitating many of 80,000

tory, which the California Association of Realtors esti-

2014 Riverside/San Bernardino Economic Forecast 11

United States Tourism: External forces are also propelling Califor-

Average Daily Rates ($, SA)

Source: U.S. Census Bureau

ever, California’s nonresidential market is experienc- 60

now in the low single-digits in most major metropoli-