Vacancy in the Inland Empire rose to 6.0% in Q2 2025, driven by a wave of newly delivered industrial space. Developers responded with caution, slowing new starts and prioritizing quality over volume. Lower rents are allowing tenants to recalibrate as they navigate evolving operational needs and broader economic uncertainty.
Despite softer e-commerce growth, demand remains for specialized spaces such as cold storage and last-mile logistics. High-efficiency buildings are leasing well, while older, less adaptable facilities face pressure. Strong fundamentals continue to support pricing in prime submarkets.
MARKET DRIVERS
The market remains closely tied to international trade, with West Coast ports—particularly those receiving Chinese imports—playing a key role in driving space demand. Shifting tariffs have led some users to expand inventory, while others adopt a “wait-and-see” posture to assess long-term impact.
Developers are adjusting timelines and leasing strategies in response to slower absorption, especially for larger speculative builds. Flexible, right-sized facilities are attracting more interest as tenants seek efficient layouts and greater adaptability.
Variable interest rates and consumer spending trends continue to influence leasing decisions. Elevated vacancies have led to more tenant-friendly negotiations, especially in commodity space, though newer buildings in key logistics corridors remain competitive.
FORWARD OUTLOOK
The second half of 2025 is expected to bring continued recalibration. New construction starts will likely slow further, aligning with absorption trends. Leasing activity should
remain tenant-driven, with demand favoring functional, well-located product over legacy space.
Rental rates may stabilize or soften in outlying submarkets, but demand for modern distribution centers should persist, particularly near transportation hubs. As supply chains evolve and global trade flows adjust, the Inland Empire’s strategic location will continue to anchor long-term industrial demand.
Cap rates are holding near 7.0%, and sale prices averaged $273.29/s.f., suggesting a stable investment environment despite current market headwinds.
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