Second Quarter 2025
Inland Empire Retail Rebounds, Filling Vacancies and Facing Tariff Uncertainties
Population in-migration, leasing activity, and selective development are shaping the region’s retail landscape as vacancy stabilizes and rents remain steady.
Q2 2025 data highlights $398M in year-to-date sales, 302K SF of new retail deliveries, and measured progress in a market navigating rising costs and shifting demand.
MARKET OVERVIEW
The Inland Empire’s retail market experienced notable growth over the past year, supported by population in-migration and the region’s relative housing affordability. According to the California Department of Finance, Riverside and San Bernardino counties grew by 0.2% and 0.3% between 2024 and 2025, bringing the region’s population to more than 4.7 million. This demographic expansion has spurred new retail development, with 302,337 square feet delivered in the first half of 2025. At the same time, retail space under construction declined 1.4% from the prior year, totaling 613,252 square feet.
The retail vacancy rate in Q2 2025 declined by 10 basis points from the prior quarter but was still up 60 basis points year-over-year, reaching 6.3%. Leasing activity included 128,212 square feet across major tenants, such as Skyzone at Moreno Valley Mall, Round1 Bowling & Arcade at the Mall of Victor Valley in the High Desert, and Regional Mall in Riverside. Average rents showed signs of stabilizing, rising 1.1% quarter-over-quarter. At $1.79 per square foot per month triple net, rents are 18.1% higher than in Q2 2020 at the onset of the pandemic but flat year-over-year.
Development activity reflects caution as higher construction costs, inflation’s impact on consumer spending, interest rates, and slower rent growth temper momentum. Sales volume reached $398 million year-to-date, up 30.1% from the first half of 2024 and more than double the total recorded in Q1. Despite the increase in volume, the average sale price per square foot fell 1.7% year-over-year to $344, with total square footage sold down 18.9%. Meanwhile, the average capitalization rate ticked up 10 basis points to 6.2%. Investors are weighing retail class quality, pricing disparities, tighter credit, and shifting market fundamentals, all of which continue to drive fluctuations in transaction activity.
TRENDS TO WATCH
The fundamentals of Inland Empire retail continue to evolve as we move into the second half of 2025. Migration, economic conditions, and employment trends remain key drivers of growth, though at a more moderated pace. According to the California Employment Development Department, the Riverside-San Bernardino-Ontario MSA unemployment rate rose to 6.4% in July 2025, up from 6.0% in June and above the 5.8% rate a year earlier.
Population in-migration continues to fuel retail demand, particularly as residents move from neighboring counties seeking more affordable housing. According to the California Department of Finance, the fastest-growing cities include Beaumont (+1.8%), Menifee (+1.3%), and Temecula (+1.2%) in Riverside County, along with Chino (+1.7%) and Adelanto (+1.4%) in San Bernardino County. As of Q2 2025, nearly 182,000 square feet of retail space were under construction across the region, up 22.8% quarter-over-quarter and 25.4% year-over-year. Riverside County accounted for 29.3% of the total, while San Bernardino County represented 0.4%. More than half (51.2%) of newly completed space this year has been concentrated in the South submarket.
Vacancy growth has slowed, aided by retailers backfilling space vacated during bankruptcies and closures among drugstores, apparel chains, and home goods stores. Leasing activity underscores this shift: Fun & Find leased space at Highland Avenue Plaza in Highland; Crunch Fitness opened a new facility at Midtown Square in Hesperia; Stater Bros. Markets renewed its lease in Corona; Savers signed an anchor lease at Chino Hills Marketplace; Grocery Outlet will open at Alta Loma Center; Dollar Tree is adding a location at Sierra Vista Plaza; and Unicare, a community health provider, is opening in Phelan. These expansions highlight efforts to meet the Inland Empire’s growing demand for quality retail options.
Looking ahead, new tariff surcharges pose a key uncertainty, potentially driving up retail goods prices and slowing leasing momentum. Even so, a mix of flexible lease terms, strategic concessions, and selective investment is supporting measured progress. Competition for prime retail space is expected to intensify as options are picked over, with elevated sale prices for well-located properties and softening rents for secondary locations reflecting both investor confidence and adaptive strategies as the sector navigates its recovery.
