The Inland Empire industrial market's 6M SF swing into negative territory in the second quarter-when net absorption of minus 2.3M SF marked the first negative quarter for the market since the dark days of Q4 2008-didn't last very long.
A slew of pre-leased deliveries pushed third quarter net absorption up to 2.19M SF in Inland Empire as large projects in the IE West submarket delivered more than 6M SF, according to CBRE's Q3 2023 market report.
Overall, however, the nation's hottest industrial market in 2022 is showing signs of a pronounced cooling a year later, as vacancy and availability rates increase while leasing activity and sales are dropping.
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Overall vacancy increased in Inland Empire by 80 bps to 3.5% in Q3, up from 2.7% the previous quarter, and availability increased to 6.7% from the Q2 level of 5.9%, CBRE reported.
Vacancy in the larger size ranges of 300K SF and above made up about 45% of vacant space in Inland Empire as large occupiers gave back extra space and others vacated due to bankruptcy, CBRE's report said. Available sublease space grew to 8.7M SF in Q3, with sublease availability concentrated in 100K SF and above size tranches.
Gross activity in new leasing and user sales declined to 6.07M SF in the third quarter, a 25% decline over the 8.07 SF recorded in Q2 2023.
According to CBRE, Inland Empire is "normalizing"-with vacancy, availability and development returning to pre-pandemic levels and "unsustainable" rate growth of the last three years tapering.
As landlords and occupiers alike navigate increased availability and large spread on asking rents, CRBE said occupiers shifted in the third quarter from a flight-to-quality to a flight-to-value.
"Occupiers returned to searching for value in Class B and sublease spaces that offered cheaper rates despite newer spaces being available," the report said.
New leases on shorter terms were signed, with the average lease term for Q3 2023 averaging 49 months versus the Q1 average of 56 months.
Pre-leased deliveries of the Prologis Merrill Commerce Center and Agua Mansa Commerce Park accounted for 5.2M SF of positive absorption in Inland Empire in Q3.
An estimated 31% of the 31.4M SF of industrial space under construction in Inland Empire is pre-leased. New construction starts in Q3 totaled more than 2M SF, most of it located in the IE East submarket.
The developing East submarket registered an availability of 7.2% in Q3, with negative net absorption of minus 2.4M SF.
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