Inland Empire’s Warehouse Surge Leads Industrial Vacancy Rates Higher in SoCal

Southern California’s industrial market is the largest in the U.S., thanks in no small part to incredible demand and activity during the COVID-19 pandemic when dramatic surges in e-commerce demand began to take hold. But trends in the past couple of years are bringing that fervor back down to Earth. 

A little over two years after achieving an average vacancy rate of less than 1 percent throughout much of 2021 and 2022, the tides began to shift with increasingly high supply deliveries and investment backtracking in the wake of elevated interest rates. The end of 2024 marked the 11th consecutive quarter of rising vacancy rates across the region, which has hit an average of 5.1 percent, according to the latest industrial market report from Colliers (CIGI), growing by 30 basis points compared to the third quarter. 

Despite generally decreasing levels of new supply since the end of 2023, the combined availability rate for L.A. County, the Inland Empire, Orange County and Ventura County also shot upward to 7.9 percent this past quarter, a 12-year high, per Colliers. The region’s average asking monthly rent for industrial space is also trending poorly, dropping to $1.32 per square foot triple-net, nearly 40 basis points less than the $1.59 seen at the tail end of 2023. 

Although still negative some 377,000 square feet, net absorption in the region meanwhile has actually improved, up significantly from the negative 1.1 million square feet in the third quarter and the negative 2.8 million in the final period of 2023. 

Much of the downward trends are driven by the Inland Empire, which at 647 million square feet comprises 37 percent of all industrial properties over 10,000 square feet across Southern California. Though a breakdown of the western and eastern sections of the Inland Empire present more of a mixed bag.

Although vacancy rates are still elevated compared to 2021 and 2022, demand for space in the western Inland Empire in particular over the past year has helped the region’s vacancy rate begin to tick down from its peak of about 6 percent at the end of 2023 to 5.2 percent last quarter. Vacancy in the eastern section, however, continues to spike, springing up 70 basis points quarter-over-quarter to 8.6 percent, a degree not seen since 2012, according to Colliers. Average availability across both regions was 10.3 percent. 

Net absorption is also a mixed bag. The western section saw its third straight quarter of positive absorption, some 1.8 million square feet in the fourth quarter, while the eastern section recorded negative 1.2 million square feet. Four of the last six quarters recorded negative net absorption in the east. Average asking rents declined for the sixth straight quarter across both regions, dropping to an average of $1.15 per square foot per month.

Still, leasing activity across the Inland Empire this past quarter was strong at 10.9 million square feet, which Colliers projects will allow vacancy rates to taper. Large lease renewals helped lead the pack, including Burlington Coat Factory’s 800,444-square-foot renewal and consumer product company Munchkin’s 593,363-square-foot renewal, both in Redlands, Calif., from Prologis (PLD). A pair of new leases from White Horse Logistics and LC Logistics, both about 560,000 square feet in Jurupa Valley and Eastvale, respectively, were also in the top five biggest deals this past quarter. 

As far as outlook for 2025, Colliers still expects Southern California to remain a top-tier industrial market despite gloomier metrics in recent years. Investors are just still generally waiting for clarity on the Federal Reserve’s interest rate stance and general economic signals before recommitting to the region.

Nick Trombola can be reached at ntrombola@commercialobserver.com.