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June 15, 2024
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Industrial Construction in the Inland Empire Catching Up to Demand



The Inland Empire’s industrial market continued to notice the increase in construction shaping up from the impact of demand caused by the pandemic and supply chain challenges that are now a distant memory. With the economy charging along at a different pace now, the supply of new warehouse and distribution space has caught up with demand. While the vacancy rate in Q1 2023 registered a low 2.8%, it is a full percentage point higher than the previous quarter and 160 bps above a year ago. Developers added 8.6 msf of completed construction to the market in Q1 2023. With solid demand and rents rising, developers continued building new projects. More than 30.9 msf of industrial space was under construction at the end of Q1 2023.

The average asking rent reached a new record high of $1.25/SF triple net, up 15.7% from the prior quarter and 47.1% from the first quarter of 2022. The market’s strength has been remarkable as rent logged a 291% increase from the depths of the Great Recession in 2009. The exponential growth in demand for e-commerce has kept development of industrial space going. The market leased 6.7 msf in Q1 2023, up 5.6% from Q4 2022.


The leasing volume of industrial space outpaced completed construction for years as developers fought to keep pace with demand. This quarter, for the first time since the buildup during the “Great Recession,” completed construction exceeded leasing volume; 8.6 msf versus 6.7 msf, respectfully. With completed construction totaling 28 msf over the past five quarters and net absorption at 17.3 msf over the same timeframe, construction finally caught up with demand in 2023.

Developers, which have a pulse on the market, have taken notice. Industrial space under construction began decelerating in Q1 2023, down 10.2% quarter over quarter and 5% year over year. Most noticeably in the East, which led the market in construction a year ago, construction dropped 22.2% quarter over quarter and 34.8% year over year to 10.8 msf.

Strong rental rate growth encouraged development, driving sale prices and volume. In Q1 2023 the average sale price per square foot at $309 hit a new record high, up 24.9% from a year ago.

Peak pricing and rising availability of space will shape the industrial market moving forward.

This report prepared by J.C. Casillas, Managing Director, Research, NAI Capital Commercial

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