Industrial Vacancy Rate Levels Off in Inland Empire
Leasing grows, deliveries shrink, vacancy doesn't rise for first time in eight quarters.
With healthy demand rising and a wave of deliveries subsiding in the third quarter, the vacancy rate in Inland Empire’s industrial market did not increase for the first time in eight quarters.
New leasing activity increased for the fourth consecutive quarter in Q3 2024, rising to 12.2M SF, a 410K SF jump that is 3.5% higher than the second quarter tally in the vast SoCal market that stretches from the Los Angeles city limits to the Arizona border.
Only 2.1M SF of new supply in Inland Empire was delivered in the third quarter, down from 5.3M SF the previous quarter, bringing the year-to-date total to more than 18M SF, according to CBRE’s latest marketing report.
The development pipeline under construction fell to 11.6M SF in Q3 – its lowest level since 2013 and only about a fourth of the 40M SF peak during the warehouse boom of 2022.
The vacancy rate, which bottomed out in Inland Empire at a record-low 1.3% in Q2 2022, finally leveled off at 6.8% in the third quarter after more than two years of steady increases.
Leasing activity was robust in the 250K SF to 499K SF building size range, increasing by 70% in a quarter-by-quarter comparison, driven by loaded imports at the San Pedro Bay port complex, which have increased 22.5% over 2023 levels in year-to-date cargo traffic through August.
Despite leasing activity returning to pre-pandemic levels, overall net absorption turned negative in Q3 2024. Inland Empire recorded overall negative absorption of minus 234K SF, with 781K SF of positive absorption in the IE West submarket largely offsetting minus 1M SF of negative absorption in IE East.
The swing to negative absorption was attributed to a few large occupiers vacating space in buildings that are 500K SF or larger—a significant shift in the industrial narrative in Inland Empire from the beginning of 2023 through Q1 2024 when big box space drove positive absorption.
Average taking rates continued to decline for the fifth consecutive quarter in the Inland Empire from a Q2 2023 high of $1.151 NNN per SF per month, dropping to $0.08 to $1.19 NNN per SF in the third quarter.
“The Inland Empire industrial market looks to be nearing a turning point as vacancy velocity shrinks quarter-over-quarter and new development will soon be unable to satiate demand,” CBRE said.
“The IE market is expected to tighten as supply declines in the development pipeline and activity continues to improve through 2024.”