Inland Empire Industrial CRE Market Update – 4th qtr. 2024

The industrial market in Inland Empire County has an 8.0% overall vacancy rate, because of softening demand driven by a surge in new supply.

Market Highlights

• DIRECT MARKET VACANCY in Inland Empire is noted at 6.4%.
• BY THE END OF THE YEAR, the average asking rate was reduced to $1.12/SF on a triple net lease (NNN) basis.
• AN AVERAGE SALE PRICE of $285.80 per square foot and a cap rate of 5.2%.

Market Drivers

The Inland Empire industrial market was influenced by several key factors. New warehouse distribution buildings entering the market, outpacing demand and driving up vacancy rates. This has a substantial impact on the growth of the supply. Asking rents to have declined significantly because of the rising number of vacancies and the influx of lower-cost sublease options, as revenue dried up with weaker tenant interest.

Moderation played a part in e-commerce as marketplaces adjusted their supply chains after previous expansion. Automation technologies have the potential to transform the industrial landscape, reshaping the types of facilities and spaces that businesses need. As businesses face challenges and downsizing, there is now more sublease space available, providing tenants with greater flexibility and lower rental rates.

Despite short-term modifications to the market, the region's strategic location near key transportation hubs and its population growth continues to bolster long-term demand.

Near Term Outlook

Early in 2025, there is still an unsettling outlook for the industrial real estate market in the Inland Empire. The dynamics of supply chains and the demand for industrial space in the region may be greatly impacted by trade disputes and global geopolitical concerns. These challenges, which include declining consumer spending, economic uncertainty, and potential shifts in global supply chains, have reduced the demand for industrial space. The region's ongoing labor shortages can affect operations and increase costs for businesses, influencing their real estate decisions. E-commerce continues to be a major source of industrial demand, despite a slowdown in its development rate, which influences the requirement for more warehouse and distribution space.

Vacancy rates are expected to remain elevated as new construction continues to surpass demand. Increased competition among landlords may further lessen pressure on rental rates. However, lease activity can increase again if companies take advantage of lower lease rates and more available space. The market experienced a rebalancing effect in specific building size categories, as new leasing activity offset negative absorption.

The information in this report was composed by the Kidder Mathews Research Group.