California’s Tejon Ranch Cashes In on Industrial Trends

While Los Angeles and the Inland Empire deal with rising warehouse availability, the larger industrial market is sprawling out and pushing into some of California’s alternative submarkets.

Case in point: Industrial development firm Dedeaux Properties, along with Tejon Ranch Company, one of the largest private landowners in California, are building a 510,000-square-foot spec warehouse at Tejon Ranch Commerce Center (TRCC), betting that rising costs will draw more tenants toward the Interstate 5 corridor.

TRCC already has roughly 9 million square feet developed and fully leased at TRCC to tenants including Ikea, Nestlé, L’Oréal, Caterpillar and Dollar General, as well as 11 million square feet of remaining industrial entitlements. Executives say the project reflects Tejon’s emergence as a regional distribution hub as the Inland Empire works through a cycle of excess availability.

Commercial Observer recently caught up with Rishi Thakkar, Dedeaux Properties’ senior director of investments, and TRCC Executive Vice President Derek Abbott to talk about the 510,000-square-foot project, as well as expectations for TRCC’s remaining 11 million square feet of entitlements, and the overall shifting logistics demand.

The following has been edited for length and clarity. 

Commercial Observer: You’re breaking ground on a 500,000‑square‑foot spec facility when there are market headwinds and economic issues. What gave you the conviction to move forward with this project now?

Derek Abbott: Tejon Ranch is a proven location and an alternative for Southern California’s land‑constrained real estate market. Industrial here has become a destination for major tenants — blue‑chip industrial users. We have an existing portfolio of about 7 million square feet that’s 100 percent occupied.

At the same time, Central Valley South dynamics are tightening, and we’re also seeing supply tighten in the Southern California market as the pipeline has essentially become nonexistent in certain submarkets. 

We see an opportunity to continue to accommodate new tenants here, as well as the growth of our existing tenants. 

Every building we’ve delivered has been leased, and every partner we’ve worked with, we’ve worked with again.

Rishi Thakkar: What’s very attractive about Tejon Ranch and the Commerce Center is that there are still 11 million square feet of pre‑existing industrial entitlements. That’s compelling, especially as we evolve into a more technology‑focused economy where AI is front and center and a lot of large corporate users want to lock down campus‑type facilities.

One tenant immediately adjacent to us is Nestlé, which acquired 50 acres and is building a state‑of‑the‑art facility that will be its West Coast regional headquarters. That’s just one example of the tenancy at Tejon Ranch and the kind of campus‑type aggregation.

That’s a primary driver behind “why Tejon Ranch?” and “why now?”— especially in the wake of volatility elsewhere in Southern California and in development. … And, even though we are just now breaking ground on this new building, we’ve already had interest from a few tenants who have submitted requests for proposals.

Can you talk about how tenants are choosing Tejon Ranch and that market over the Inland Empire? Are you seeing that trend, and is it increasing?

DA: Tenants are choosing this location first and foremost because of operational dynamics. There’s a proven model for Western U.S. regional distribution here that Ikea started with its 1.7‑million‑square‑foot facility about a decade ago. 

These tenants select Tejon because of the logistics opportunity and our proximity to major north‑south trade corridors, as well as access to east‑west trade corridors. We have immediate access to the freeway, and when tenants look at all‑in operating costs — rent, transportation and so on — they see strong value here.

RT: You mentioned the Inland Empire. The IE is teetering on double‑digit vacancy and is well into double‑digit availability, which doesn’t support pricing power. By comparison, Tejon Ranch currently has no vacancy and no availability. We’ve actually seen rental rates steadily increasing here, unlike some other markets.

Southern California is the center point for the U.S.–Asia trade lane, with a tremendous amount of product coming through the ports of Los Angeles and Long Beach. Over the last 10 to 15 years, there was a massive development boom along Interstate 10 going east into Phoenix. Developers and logistics users factored in drayage costs [the cost of transporting product] out to markets like Phoenix and then bringing it back to the main delivery base.

Given what’s going on in the Middle East, and the cost of oil and gas, that math has not worked out in the logistics firms’ favor. In fact, drayage costs have increased significantly. 

So when you have a location that’s very conveniently located along Interstate 5 and the Central Coast — effectively equidistant, depending on where you are along the I‑5, between Northern and Southern California, both of which represent tremendous consumption bases — it becomes even more compelling.

Because of all that, we’re now looking more at North L.A., along the I‑5, and in the Antelope Valley and High Desert, instead of along the I‑10 where there’s been a tremendous amount of over‑building.

You said there are still 11 million square feet of entitled industrial space remaining at Tejon Ranch?

RT: That’s correct. The land is entitled for industrial use.

You still have to go through design approvals and county approvals, but at the master‑plan level we can build out 11 million square feet with very little to no resistance, which is very unique in Southern California.

Can you talk about how this latest project fits into the broader strategy for the 20 million‑square‑foot plan?

DA: The building is a 510,000‑square‑foot Class A warehouse. We already have great institutional tenants here, and we have a proven track record in this size range — many of our buildings are around 500,000 square feet

We’re delivering one of the only Class A buildings in this size range that’s available right now along this corridor.

RT: From Dedeaux’s side, this will be our second development in TRCC. Our first was a 13‑acre site that Tejon sold to us. We spec‑built a 233,000‑square‑foot building there and sold it shortly after completion at the highest price ever achieved in TRCC.

A key idea behind that initial development was to establish a foothold so we could do more at TRCC. The success of that first project put us in a good light with Tejon Ranch Company.

We started talking about the 50 acres under consideration now. We’ve just closed on 25 of those acres and intend to close on the remaining 25 once we’ve reached critical mass and moved far enough along with this development. Our goal is a programmatic and measured buildout of the Commerce Center. That’s our vision: to help build out the remaining 11 million square feet. 

We think this is — or very soon will be — a central industrial hub, if it isn’t already viewed that way.

Where do you see leasing demand trending over the next year to 18 months, particularly for large‑format distribution properties like this?

DA: We see supply tightening in Southern California. The broader Inland Empire is still working through some oversupply, particularly in the eastern submarkets, but it’s tightening as well, and the pipeline is essentially nonexistent — at its lowest level in more than 10 years.

Central Valley South is also quite tight. There are some great Class A spaces being delivered a little further north, and those are being leased by major users. Overall, Class A space in this broader market is in limited supply.

RT: I agree. A lot of the slowdown in demand you’ve seen is in smaller‑block buildings. Once you get into the large‑block space, it’s still very compelling from an owner and developer standpoint. Corporate America’s trend is toward higher clear heights and bigger footprints to automate and introduce robotics into their workflows.

When you see an industrial hub like this effectively grow out of nothing over the past decade or so, what’s happening on the residential side? Are you seeing an inflow of residents tied to the increased business activity?

DA: Yes. Tejon Ranch Company decided to invest in Terra Vista at Tejon, our apartment community at the Commerce Center. We’ve completed 228 apartments, which were delivered late last year.

The labor story for TRCC has always been a surprisingly positive one. Our operators are consistently impressed by the quality of the labor force here when they come in. Roughly 5,000 workers come to this area daily to work in distribution centers, retail operations and other uses.

Terra Vista at Tejon is only the first on‑site housing opportunity at TRCC. There will be additional residential communities developed.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.