Q4 2022 Industrial Market Outlook – Inland Empire
In the fourth quarter of 2022, the Inland Empire’s industrial market began to see an improvement taking shape from the impact of sorting out supply chain challenges caused by the pandemic. As the economy roared, rent continued rising as the demand for warehouse space outstripped supply across the region. While the vacancy rate remained at an extremely low 1.9 percent, it is up 30 basis points from the previous quarter and 60 basis points from the fourth quarter of 2021. The average asking rent increased 32 cents from the prior year to $1.17 per square foot triple net, up 37.6 percent from the fourth quarter of 2021. The market’s strength was extraordinary over the past year, vacancy recorded a 10.2 percentage point spread from its 2009 all-time peak when vacancies exploded in the Great Recession. The exponential growth in demand for e-commerce due to COVID-19 resulted in the huge development of industrial space in the Inland Empire.
TRENDS TO WATCH
The Inland Empire’s East industrial submarket grew out of the necessity for large swaths of land to build mega distribution centers to serve Southern California’s fast-growing logistics needs. While developers continued building in the East Inland Empire as demand for warehouse and distribution space remained robust, space under construction decreased 13.8 percent quarter over quarter. The East was the only submarket to see a decline in construction this quarter as completed construction there added more than 8.2 million square feet year to date – the most square footage added to the Inland Empire in 2022. With net absorption of approximately 7.3 million square feet year to date, the supply of new construction appeared to catch up with demand in the East Inland Empire this year.