Fourth Quarter 2024
Inland Empire Industrial Market Faces Pricing Pressure and Shifting Demand as Construction Slows
Q4 2024 sees declining sales volume, moderating demand, and a cooling market, with sublease opportunities and steady port activity fueling long-term space needs.
Shrinking lease and sale velocity will present a challenge while driving efforts to close deals.
MARKET OVERVIEW
Brisk demand for industrial space in Q4 2024 drove the Inland Empire’s industrial vacancy rate down to 7.6%, a decrease of 30 basis points quarter-over-quarter, though it remained 200 basis points higher than the same period last year. Over the past four quarters, approximately 26.8 million square feet of completed construction entered the market, while net absorption, though positive, totaled 10.6 million square feet. This trend underscores a shifting trajectory in the industrial market.
Completed construction dropped significantly by 62.7% quarter-over-quarter and decreased by 5.9% year-to-date compared to Q4 2023, reflecting fewer new construction starts as demand for warehouse space moderates following the peak of e-commerce expansion. The volume of industrial space under construction also declined, down 57.9% year-over-year and 12.7% from the previous quarter. Rent growth, once a primary driver of new development, continues to decelerate, with the average asking rent in Q4 falling 5.9% quarter-over-quarter to $1.12 per square foot on a triple net basis—a 21.7% decline year-over-year.
Sale volume in Q4 dropped 24.0% from Q3 2024 and 24.5% year-to-date compared to the same period in 2023, totaling approximately 10.2 million square feet by the end of the year. The average sale price per square foot decreased 27.3% quarter-over-quarter to $276 per square foot, which is 11.8% below last year’s level. Leasing volume also declined sharply, down 44.8% quarter-over-quarter, with approximately 9 million square feet leased by the end of Q4. However, year-to-date leasing volume edged up by 7.2%, nearing 57.7 million square feet, indicating waning demand as the year came to a close.
TRENDS TO WATCH
Shrinking lease and sale velocity will present a challenge while driving efforts to close deals. The expanding availability of warehousing options is set to boost the leasing market as companies seek adaptable solutions to meet shifting demand. Excess sublease space will continue seeking backfill opportunities, with the rate of newly vacated sublease space dropping 17.2% from Q3 2024. However, the volume of sublease space remains 16.3% higher than Q4 2023, totaling approximately 10.5 million square feet—down from a record high reached last quarter.
Although cargo flow through the ports remains steady, the abundance of industrial space provides ample options for warehousing needs. According to the latest data from the Ports of Los Angeles and Long Beach, combined TEU cargo volumes—a key indicator of industrial space demand in Southern California—have increased by 22.1% year-to-date as of November. This steady uptick in port activity continues to underpin regional logistics and supply chain operations, reinforcing the long-term demand for industrial space in the Inland Empire.
While growth rates are expected to taper off, prices will likely continue declining amid elevated interest rates, affecting industrial building sales that once commanded premium valuations for high-quality space. Sales dollar volume decreased by 52.1% quarter-over-quarter in Q4, bringing the year-to-date total to $2.5 billion—18.2% below last year’s level. The annual median sale price per square foot reached $264, reflecting a modest $3 or 1.2% increase from 2023, underscoring the market’s adjustment in sales volume and pricing in response to shifting demand and elevated interest rates. By comparison, the annual median sale price per square foot in 2023 rose 3.5% from 2022, highlighting ongoing changes in the market. Elevated interest rates and cooling demand are expected to continue pressuring pricing into the first half of 2025, introducing both challenges and opportunities in the Inland Empire’s industrial market.
