Inland Empire Industrial Market Update – Q1 2025

Overview:
The Inland Empire industrial market showed mixed signals in Q1 2025, with stabilizing rents, modest absorption, and signs of cautious optimism from investors and tenants. The overall vacancy rate sits at 7.5%, due largely to a continued influx of newly delivered properties across the region. Direct lease rates have decreased, ending at $1.03 NNN PSF, down nearly 25% year-over-year.

Key Market Trends:

• Vacancy and Availability: Direct vacancy declined to 5.8%, while total availability jumped to 11.8% as speculative projects delivered vacant. The spike in new supply pushed availability up, but demand remains steady, especially in newer, more modern facilities.

• Leasing and Absorption: Q1 saw 10.7 million square feet of leasing activity, with 3.5 million square feet in net absorption. Leasing was driven by tenant expansion and consolidation efforts, with Inland Empire West outperforming the East in overall activity.

• Construction and Deliveries: Approximately 1.4 million SF of new space delivered in Q1, adding to the growing inventory. While construction starts are slowing, 5.7 million SF remains under construction. Notable projects include The Hub (2.08M SF) and Speedway Commerce Center (1.81M SF).

• Sales Activity: Sale volume was down sharply year-over-year, with $1.1 billion in closed transactions, marking a 30% drop. Major Q1 transactions included Serrano Business Park (332,725 SF for $86M) and West Ontario Distribution Center (174,494 SF for $55.2M).

• Pricing and Cap Rates: Average sales price per square foot settled at $259, while the average cap rate climbed to 6.1%, reflecting investor caution. The increase in cap rates indicates higher return expectations amidst ongoing economic uncertainty.

• Rental Rate Adjustments: Asking rents fell across both East and West submarkets. The West averaged $1.18 PSF while the East dropped to $0.99 PSF. The ongoing correction reflects tempered demand and cautious expansion strategies.

• Submarket Highlights: Fontana and Ontario continue to be the most active submarkets, accounting for over 3.6M SF of combined absorption. Rancho Cucamonga and Jurupa Valley also remain favored for mid-sized logistics users.

Outlook:
The Inland Empire remains one of the most critical logistics and distribution hubs in North America, but the market is clearly recalibrating. Lease rates are down, development pipelines are tightening, and vacancy is rising—but demand remains, especially for well-located, efficient buildings. As macroeconomic and geopolitical uncertainty persists, the market is likely to remain tenant-favorable in the near term.

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