Q3 2023 Industrial Market Outlook – Inland Empire
The Inland Empire industrial market in the third quarter of 2023 is experiencing the effects of developers overbuilding warehouses to address supply chain challenges resulting from the pandemic shutdown. The once-booming economy and rising rents have significantly slowed from the previously high demand for warehouse space that had outpaced supply across the region. The average asking rent increased by just 3 cents from the previous quarter to $1.34 triple net, although it remains up by 25.2% from the third quarter of 2022. This quarter, the vacancy rate reached a five-year high of 4.8%, representing a 110-basis point increase from the previous quarter and a 330-basis point increase from the third quarter of 2022. Looking back to this time last year, the market was exceptionally strong, with vacancy rates at record lows, and massive industrial space developments were rapidly breaking ground in response to surging e-commerce demand.
TRENDS TO WATCH
In the East, developers were building extensively due to high demand for warehouse space. The need for vast land areas to build mega distribution centers to serve SoCal’s rapidly growing logistics needs drove the growth of the East industrial submarket. However, construction in the East has slowed, with a 30.2% decrease from the previous year, despite a 5.5% increase in space under construction this quarter. The submarket has become saturated, with over 12.4M square feet of completed industrial space added since Q3 2022. The supply of new construction has now exceeded demand, resulting in 3.1M square feet of negative net absorption this quarter, as completed construction has totaled approximately 6.2M square feet year to date. According to the latest figures from the Ports of Los Angeles and Long Beach, combined TEU cargo volumes, a significant driver of warehouse space demand, declined by 23.1% year to date as of August.