Inland office market prepares for 2026

The Inland Empire office market appears ready to have a solid – but probably not a spectacular – 2026, based on its recent performance.

During the third quarter of this year, the Inland region maintained a 5.5 percent vacancy rate, despite a 33 percent decline in leased space compared with the previous quarter, according to CBRE.

Demand was driven by vacancy rates lower than those in the coastal communities, along with a strong need for office space by healthcare tenants and small to medium-sized businesses in general.

Net absorption improved to 12,500 square feet, a modest total that was helped by a reduction in vacated space. The average lease rate – $2.17 per square foot – was one cent lower than it was in the second quarter, the result of more Class B office space entering the market.

On the negative side, no office projects broke ground during the third quarter, either speculative or build-to-suit, CBRE reported.

During the next 12 months, the Inland office market should be able to attract investors, landlords and tenants, once the Federal Reserve’s interest rate cuts are felt and the Trump Administration’s tariff policies become more stable, according to CBRE.

The Inland region’s fundamentals remain strong, starting with a relatively strong local economy.

It also has a large workforce, good access to Los Angeles, Orange and San Diego counties, and can offer more competitive leasing prices, especially for Class A office space.

“The Inland Empire office market is expected to remain a standout performer in Southern California’s office market,”  CBRE stated in its third-quarter market summary.

One veteran Inland Empire office broker said he agrees with that assessment, but cautioned that the market will continue to face some difficult hurdles in 2026.

“Twenty twenty five was a good year for us,” said Rick Lazar, senior associate with Lee & Associates Riverside. “We saw an upswing in demand, which is always good, but it’s still a tough market because there’s very little space available.

“And rents are going to go up at least five percent in 2026, possibly higher if the economy expands.”

One of the biggest problems facing the Inland office market at the start of 2026 is large entities buying office buildings and occupying them, rather than leasing them out piece by piece. That practice reduces vacancies, but it also means the building can’t attract a mix of  businesses from outside the area, according to Lazar.

To cite one example, in 2021 Redlands bought the six-story Citrus Center at 300 E. State St. for $16 million. It’s now converting the building, formerly occupied by Citibank, into city hall and a police station.

Renovations are expected to be completed in the spring of 2027, at which point the building will be off the market.

“Redlands bought the downtown building, and they won’t be renewing any leases there,” Lazar said. “The city is taking the whole thing. That’s happening all over, and it’s not good for the market. I think that we’re going to see more of that trend continue in 2026.”

The Inland Empire will see little or no office construction, either build-to-suit or speculative, in 2026. It’s task will remain filling empty space, some of which has been on the market for years.

“There’s always a chance that something could happen, but there are no buildings being planned that I know of,” Lazar said.

Lease rates are virtually certain to go up in 2026, due to the lack of new product being built, and the supply of available office space shrinking, albeit slowly.

“Construction costs have also gone up substantially, and that’s a real problem, and it’s going to stay that way next year,” Lazar said. “It will be too expensive to justify the cost of constructing a building, because you’re going to lose money no matter where you do it.”

But 2025 was a good year for the Inland Empire office market, and 2026 should be as well, according to another broker with strong ties to the region.

“I don’t think 2026 will be bad at all,” said Tom Pierik, senior vice president with Lee & Associates Riverside. “Vacancy will continue to drop, and absorption will remain steady. It’s a good market, and I think it will stay that way.”

The Inland office market is being hurt by higher construction costs, particularly regarding tenant improvements, Pierik said.

“The market hasn’t fully recovered from the pandemic, partly because tenant improvement costs have increased so dramatically,” Pierik said. “They’re 35 percent to 45 percent more than they were, and that makes it more challenging to lease space. The goal now is to fill in the space we already have.”