In the second quarter, California’s Inland Empire witnessed a significant shift in its industrial market, experiencing negative net absorption for the first time in two decades. This development reflects the broader trend of softening in the industrial market across the country.
According to a recent report from Savills, absorption in the Inland Empire dropped by 1.3 million square feet in the second quarter of 2023. This decline can be attributed to larger economic forces and the departure of notable tenants. Notably, UPS vacated 1 million square feet in Fontana, California, while NFI Industries and DCF Fulfillment moved out of 433,000 square feet and 410,000 square feet, respectively.
Despite the slowdown in leasing activity, the market remains highly competitive, with a vacancy rate of 3.8 percent, as reported by Savills. Although this represents an increase from the 1.2 percent vacancy rate in the same period last year, it is still considered a tight market. This rise can be partly attributed to the ongoing construction pipeline, which introduced 10 million square feet of new industrial space in the first quarter of the year.
The market secured one notable lease deal for over 1 million square feet, as Bodega Latina leased 1.4 million square feet at 12430 Fourth St. in Rancho Cucamonga. Furthermore, shipping giant Maersk demonstrated its commitment to the area as a logistics hub by leasing 645,000 square feet. This decision came as a labor dispute at the Ports of Los Angeles and Long Beach was resolved, injecting certainty into the region’s industrial market.
The aforementioned dispute had introduced uncertainty into the area, resulting in flattened rents during the second quarter. Asking rates experienced a modest 0.7 percent increase, reaching $1.44 per square foot, which is significantly lower compared to the 27.4 percent growth witnessed a year ago. Savills anticipates further downward pressure on effective rents going forward.
The market dynamics observed in the Inland Empire mirror those of other major metropolitan areas. As demand slows, the industrial market nationwide is witnessing a surge in new construction projects entering the market. Nevertheless, consumer demand for e-commerce and grocery delivery continues to drive the need for warehouses, and investors still favor the industrial sector over the struggling office sector.
Source: Savills, Bisnow
