SoCal’s Inland Empire Industrial Market on the Comedown: Report
Amount of vacant sublease space doubled since last year, hitting all-time high
By Nick Trombola July 11, 2024 5:09 pm
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The largest industrial submarket in the United States is shifting into neutral after years in the fast lane.
That’s according to a new market outlook from NAI Capital, which reported that Southern California’s Inland Empire reached an industrial vacancy rate of 7.2 percent — the highest since the early 2010s, when the country was pulling itself out of the Great Recession, per NAI Capital data.
The amount of vacant sublease space has also doubled since the second quarter of last year, rising to an all-time high of 13.1 million square feet.
Development projects in the famously busy Inland Empire are also showing signs of decline. While the rate of completed construction rose by 14.8 percent year-over-year, much of that came in the second half of 2023 and in early 2024. The completion rate declined by 9 percent from the first quarter of 2024 to the second quarter, as demand for warehouse space there cools.
The amount of industrial space under construction at the moment has also dipped significantly, down 48.6 percent compared to last year and down 15.6 percent compared to the previous quarter. The average price of rent has dropped along with it, descending by 6 percent year-over-year to $1.28 per square foot.
Sales volume, although having doubled this past quarter compared to early 2024, was down by over 49 percent year-over-year.
Sale prices and leasing volume in the region appear to be the two silver linings. While average sale prices per square foot dipped slightly by 1 percent quarter-over-quarter, they’re still up 13.3 percent compared to the first half of 2023. Leasing volume fared even better at 25.5 million square feet, rising 21.1 percent quarter-over-quarter and 6.7 percent year-to-date.
NAI Capital earlier this week released an industrial market outlook for neighboring Los Angeles County as well, which is seeing similar declines in growth.
Still, J.C. Casillas, managing director of research for NAI Capital, is higher on the market than it appears on the surface.
“Despite rising vacancy rates and a slowing growth rate, the Inland Empire’s industrial real estate market offers significant opportunities for tenants and investors,” Casillas told Commercial Observer via email. “The increase in available warehouses will provide tenants a broader range of options and greater flexibility to negotiate favorable lease terms. As the construction boom of new warehouses winds down, it reflects developers’ confidence in capturing future demand.”
The rate of growth in the Inland Empire is slowing, which normally signals higher prices as the amount of new space normalizes, but NAI Capital expects prices to continue dipping due to high interest rates.
Nick Trombola can be reached at NTrombola@commercialobserver.com.
