Inland Empire: Tale of Two Industrial Markets
The Inland Empire industrial market continued to exhibit a split personality in the fourth quarter, with the trend toward stabilization in the IE West offset by malaise in the IE East.
The overall industrial vacancy rate in Inland Empire held steady at 6.9% in Q4, despite a plunge in leasing activity, which dropped to a total of 7.6M SF from more than 12M SF the previous quarter, according to CBRE’s latest market report.
The divergence between the two primary submarkets continued to grow in Q4 in the two-county region, which stretches from the Los Angeles city limits to the Arizona border.
The vacancy rate in IE West dropped 10 bps to 5.5% in Q4 as the submarket notched 6.4M SF of leasing volume and positive net absorption of about 206K SF. The IE East saw the vacancy rate rise 20 bps to 8.4% as leasing activity dropped to 1.3M, with negative net absorption totaling 965K SF, the fourth consecutive quarter of negative absorption in IE East.
Overall net absorption in the Inland Empire industrial market core totaled nearly 4M SF in 2024. IE West recorded close to 9.5M SF of positive net absorption, with only the Rancho Cucamonga submarket in the red at minus 233K SF. Six of the nine IE East submarkets posted negative net absorption, for a total of minus 5.5M SF.
The flood of new industrial supply in Inland Empire, which saw nearly 20M SF of deliveries in 2024 following a record-high 34M SF in 2023, continued to recede in the fourth quarter, with 1.4M SF delivered across the market and ground broken for only 580K SF in a pipeline that now totals 11.6M SF.
Taking lease rates declined 22% in 2024, dropping to $1.16 NNN per SF in Q4 from $1.49 in Q4 2023, as the Inland Empire market readjusted from the boom during the pandemic, when the industrial vacancy rate dropped to a record low of 1.3% in Q2 2022. Concessions including free rent and lower annual escalations increased in Q4, CBRE reported.
“Prolonged vacancies and competing sublease availability put downward pressure on rents as landlords competed to get the next deal signed,” CBRE said. “While rents looked to start stabilizing in IE West, the IE East may still have some room to fall before hitting the bottom.”
Sublease availability increased by 790K SF in Q4 to a total of 16.6M SF, most of which was concentrated in IE East, which ended the quarter with 11.2M SF of space available for sublease.
Industrial investment sales in Inland Empire increased to $509M in Q4, a 54% increase over Q3, with the average price per SF improved to $253 from $242 in Q3 while cap rates remain unchanged at 4.8%.
Source: GlobeSt/ALM