- The Inland Empire recorded 4M SF of negative net absorption in Q2, pushing vacancy to a 15-year high of 8.5%.
- Owners are using rent concessions, creative lease terms, and tenant-specific solutions to retain and attract occupiers.
- Class A facilities are drawing interest amid falling rents, while large-format warehouses face the most pressure.
- While leasing is slow, activity is stabilizing in select pockets, and port activity and major leases suggest longer-term resilience.
Industrial Leasing Cools Down In the West’s Busiest Hub
Landlords in Southern California’s Inland Empire are facing a sharp reset as industrial leasing activity softens significantly from its pandemic highs, reports CoStar.The region saw 4M SF of negative net absorption in Q2, one of the steepest nationwide, according to CoStar. Vacancy now sits at 8.5% — its highest level since 2009.
Reset After Record-Breaking Boom
The pullback marks a stark contrast to the last few years, when warehouse demand surged. Macroeconomic uncertainty is putting new deals on hold. Factors include consumer spending, interest rates, and potential tariffs on Chinese goods. Nationally, industrial tenants vacated more space than they occupied last quarter for the first time in 15 years.
Retailers and logistics firms like Forever 21, Kohl’s, and Home Depot have returned major blocks of space, with larger buildings bearing the brunt of the shift.
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Landlords Adjust Tactics
To maintain occupancy, landlords are offering rent discounts, lease flexibility, and even accepting higher credit risk. At CapRock Partners’ Norco business park, four recent leases reflect a case-by-case approach, addressing tenant concerns such as moving costs and ramp-up periods.
Dedeaux Properties has secured full-building leases in Fontana. The firm focused on market-rate pricing and creditworthy tenants, even amid broader leasing hesitation.
Rent Trends And Flight To Quality
Rents in the Inland Empire have declined 3.4% over the past year, now sitting 25% below their 2023 peak. Standard warehouse space is oversupplied, but more specialized facilities, like trailer yards and cross-dock terminals, are faring better.
Class A spaces are seeing a flight-to-quality trend, driven by competitive pricing. Still, landlords must offer more flexible terms — including rent abatement and customizations — to close deals.
CapRock noted that availability in the Inland Empire East has climbed past 20% in the 250K–500K-SF category. This signals more leasing pressure ahead.
Early Signs Of Recovery
Despite the headwinds, signs of stabilization are emerging. The Port of Los Angeles reported its busiest month in history this June. Tenants like IDC Logistics are inking major leases, including two deals totaling over 1.1M SF.
Prologis recently raised its full-year leasing forecast, further hinting at underlying strength in the market.
What’s Next
While the leasing environment remains cautious, owners are betting on a rebound. Structural demand drivers include e-commerce, shifting supply chains, and the Inland Empire’s strategic location.
“Uncertainty is delaying decisions,” said CapRock’s Monique Snowden. “But tenant demand is not gone — it’s evolving.”
