Inland Empire Industrial Absorption Goes Negative For The First Time In 2 Decades

The industrial market in California’s Inland Empire clocked negative net absorption in the second quarter for the first time in 20 years, a telling statistic following months of softening in the industrial market nationwide.

Absorption in the Empire fell into negative territory by 1.3M SF in Q2, according to a new report from Savills, driven by larger economic forces and a few significant move-outs. UPS left 1M SF in Fontana, California, while NFI Industries and DCF Fulfillment moved out of 433K SF and 410K SF, respectively.

Even with the slowdown in leasing, the market is still drum-tight at a 3.8% vacancy rate, according to Savills. That is up from 1.2% in the same period last year, an increase partly caused by an active construction pipeline that delivered 10M SF of new product in Q1.

The market notched one new deal over 1M SF: Bodega Latina’s lease of 1.4M SF at 12430 Fourth St. in Rancho Cucamonga. Shipping giant Maersk took 645K SF, demonstrating its commitment to the area as a logistics hub as an agreement was reached to end a labor dispute at the Ports of Los Angeles and Long Beach.

That dispute had injected uncertainty into the area’s industrial market, causing rents to flatten in the second quarter. Asking rates increased by 0.7% to $1.44 per SF, down sharply from 27.4% growth a year ago. Savills said it expects downward pressure on effective rents to continue.

The market dynamics at play in the Inland Empire resemble what is taking place in other major metro areas. Following a blistering pandemic-induced run-up, the industrial market nationwide is seeing huge amounts of new construction come on the market as demand slows.

However, warehouse demand drivers like e-commerce and grocery delivery are still popular with consumers, and investors largely still view industrial as a favored asset class over the troubled office sector.