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A law meant to put the brakes on logistics development could lead to a flood of logistics development in 2025, not only in the Inland Empire but statewide.
AB 98, which Gov. Gavin Newsom signed into law in September, puts in place a series of environmental and community health protections regarding the construction of warehouse-distribution facilities.
Those guidelines, which won’t go into effect until Jan. 1, 2026, include establishing buffer zones between warehouses and “sensitive” areas, which include residential neighborhoods, schools and parks. AB 98 also requires setting up truck routes that avoid residential areas, and that all warehouse-distribution operations have energy-saving features, including solar panels and electric vehicle charging stations.
Environmental groups praised the new law, declaring that it will protect community health by reducing carbon emissions. But it will also make it more expensive to develop logistics projects, particularly those that cover 500,000 square feet or more, and it will add to the regulatory burdens already imposed on California’s logistics industry, according to industry officials.
As a result, a lot of companies will be fast-tracking their planned logistics operations said Rick Lazar, senior vice president with Lee & Associates Redlands and a long-time industrial and commercial broker in the Inland Empire.
“I expect to see a lot of projects go up, especially in the first six months of the year,” Lazar said. “People will try to avoid being caught up in AB 98. I also expect to see vacancy rates remain high and rents to continue to drop.”
The Inland Empire industrial market might see open houses for projects shortly after they’re built, something that Lazar says he can’t remember ever happening.
“We’ve never had to do them, as far as I can recall,” Lazar said. “We couldn’t keep them on the market for very long, so we didn’t need them.”
Heading into 2025, the Inland industrial market remains relatively strong, but it does have some negative issues to deal with as 2024 winds down.
The region’s vacancy rate was 6.8 percent, the first time in eight quarters the regions’s vacancy rate didn’t go up.
During the third quarter, industrial leasing in the Inland Empire increased by 70 percent between the second and third quarters among projects that covered 250,000-499,999 square feet, but declined 36 percent in the 100,000-249,999 square foot range, according to CBRE.
In the “big-box” category – 500,000 square feet and above, the sector that has driven the Inland industrial market for years – leasing was down five percent quarter-over-quarter.
Net absorption was minus 234,000 square feet, mostly because of the drop in big-box leases. Construction was down 11.6 million square feet from the second quarter, and the average lease rate – $1.19 a square foot – experienced a mild drop of .08 percent quarter-over-quarter.
Despite those less-than-robust numbers, the Inland Empire will remain one of the world’s premiere industrial markets for the foreseeable future, the report states.
One veteran Inland industrial broker said he doesn’t expect the market to change much between this year and next year.
“If you enjoy 2024 then you’re going to enjoy 2025,” said Chuck Belden, executive vice chair with Cushman & Wakefield Ontario. “I expect next year to be a sequel to this year. Right now, we don’t have a supply problem, we have a demand problem. There’s not enough demand for what’s coming through the ports, and don’t see that changing in 2025.”
Belden also predicts lower rents in 2025, and said he has no idea whether the economy will experience a recession in the next 12 months.
“I think the west end will keep getting most of the new projects,” Belden said. “There’s still enough land there and the rates are good. The east end will still do well, but most people want to be closer to the ports and the airports.”
It’s also too early to predict what impact President-elect Trump’s proposed tariff’s on Canada and Mexico might have, assuming they happen, Belden said.
The Inland Empire could also benefit from the labor strife among east coast dockworkers, said Lisa Anderson, founder and president of LMA Consulting Group Inc. in Claremont, which specializes in manufacturing and supply chain clients.
Members of the International Longshoreman’s Association struck for three days last October before returning to work, agreeing not to strike until January. In the meantime, both sides will continue negotiations regarding the use of automated machinery, according to reports.
“If they do end up striking again we could see a lot of material diverted to the west coast, and that would help the Inland Empire,” Anderson said. “That’s one reason I think 2025 will be a pretty robust year locally.”
