Inland Empire Industrial Real Estate Market Report: Q1 2025

Overview:
The Inland Empire industrial market showed signs of resilience in Q1 2025, posting 3.2 million square feet (MSF) of net absorption and a notable 20 basis point (bps) quarterly drop in vacancy to 7.4%. Despite economic uncertainty and global trade disruptions, demand for logistics and warehouse space remains solid, positioning the Inland Empire as one of Southern California’s most vital distribution hubs.

Vacancy and Supply:
Overall vacancy fell to 7.4%, the first quarterly decrease since early 2022. However, availability rose to 10.5%, indicating lingering softness and continued delivery of speculative supply. Direct vacancy stood at 6.7%, while sublease space accounts for over 22% of all available inventory.

Lease Rates and Pricing Trends:
Lease rates continue to soften. The overall average asking rent declined to $1.18 per square foot (PSF), an 11.4% year-over-year decrease. Sublease space rents averaged $0.87 PSF, down significantly from peak pandemic levels. The Inland Empire West held firm at $1.32 PSF, while the East averaged $1.11 PSF. Although leasing rates remain under pressure, the Inland Empire retains a price advantage over neighboring coastal submarkets.

Leasing and Absorption:
Leasing activity totaled 11.5 MSF in Q1, led by Inland Empire West with 6.9 MSF and East with 3.9 MSF. Top lease transactions included Komar Distribution Services (855,330 SF, Perris), SLM Warehouse (823,820 SF, Perris), and Samsung (800,526 SF renewal, Ontario). The sub-250,000 SF category continues to dominate leasing volume, indicating strong demand for midsize distribution facilities.

Development and Deliveries:
Only 2.0 MSF of new supply was delivered in Q1—one of the lowest quarters on record. However, under-construction volume remains high at 11.0 MSF, led by 5.8 MSF in the West and 4.9 MSF in the East. Major deliveries included Lowe’s Home Improvement’s 1.0 MSF build-to-suit in Redlands. With fewer new groundbreakings expected in 2025, the market may gradually shift toward equilibrium.

Investment Sales:
Sales activity remained active with notable deals such as 11296 Harrel St. ($90M, Jurupa Valley) and 1932 Bon View Ave. ($55M, Ontario). Average sales prices held steady around $259 PSF, while cap rates hovered at 6.1%.

Labor Market:
Employment in the Inland Empire rose modestly to 1.7 million, with a 5.2% unemployment rate. The region lost 6,500 construction jobs and 3,100 manufacturing jobs over the past 12 months, while the transportation and utilities sector shed 300 jobs. Labor availability remains a key factor for future industrial expansions.

Port Influence and Trade:
The Ports of Los Angeles and Long Beach handled 3.4 million TEUs in the first two months of the year, up 15.3% YoY and a 22.5% increase from pre-pandemic volumes. Shifting cargo patterns due to labor instability and tariffs continue to influence tenant decisions throughout the Inland Empire.

Outlook:
Despite moderate rent declines and rising availability, the Inland Empire remains a top-tier market for industrial users. Strong demand for logistics space, coupled with slowing construction and solid port volume, should drive gradual market stabilization in the second half of 2025. Elevated vacancy will continue near-term, but rental rates are expected to firm as excess space is absorbed.

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