Inland industrial market slows

After several years of solid – and occasionally spectacular – growth, the Inland Empire industrial market is starting to lose steam.

Vacancy rose to 3.9 percent year-over during the third quarter, to 25.6 million square feet, according to Voit Real Estate Services.

The industrial vacancy rate in Riverside and San Bernardino counties in the third quarter of 2022 was slightly more than one percent.

At the same time, sales and leases fell by nearly 10 million square feet, a decline of 58 percent from the third quarter of 2022, Voit reported.

Average lease rates throughout July, August, and September were $1.41 a square foot, up from 89 cents a square foot one year earlier, an increase of 58.4 percent. That increase is attributed to a demand for first-generation” space, a trend that began to wane as the quarter ended.

Net absorption was 1.5 million square feet, down from 3.1 million square feet year-over-year.

The market’s biggest soft spot appears to be structured between 100,000 and 250,000 square feet. Despite a 12 percent availability rate, more space is expected to go online in that sector during the next six months.

The Inland industrial market is in flux as 2023 winds down, according to Voit.

“The Inland Empire market has slowed substantially in the past year,” the report states.  “Transaction velocity is down across all size ranges and the slowdown has taken hold. Landlords will have to offer more in concessions to attract [tenants]. “Asking rents will remain high, but more landlord concessions, such as free rent and tenant improvements. will push effective rents lower for the next several quarters.”