MARKET DRIVERS
Despite over 34.5 million square feet of new industrial space added since 2023, with 34% still unleased, demand is declining, evidenced by major distribution center closures by companies like Maersk-owned Performance Team and NFI Industries, and an influx of sublease offerings. This paradox of booming construction amidst waning tenant interest is nudging the market towards a more balanced state, albeit with future uncertainties.
The reduction in construction starts may help maintain this balance, but the market’s direction remains to be seen, depending on whether absorption rates can counteract current trends. The market has seen a -3.4 million square foot net absorption rate over the past 12 months and a decrease in asking rents for the first time in a decade, driven by a flood of discounted sublease space. Landlords are facing longer lease-up times, which compels them to adjust rents and offer concessions to attract quality tenants.
Conversely, tenants, particularly those with strong credit, find themselves in a favorable position to negotiate lease terms and rents, potentially redefining market rent standards. The Inland Empire’s industrial landscape is at a crossroads, with its future dependent on the dynamic interplay between supply, demand, and broader economic factors.
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