The industrial market in California’s Central Valley has undergone a turnaround in net absorption, dropping from its highest positive level since the warehouse boom of 2022 at the beginning of the year to nearly the lowest level in the past 10 years.
The category sank to more than minus 1M square feet in Central Valley in the first quarter, down from the fourth quarter’s positive tally of nearly 3M square feet, according to a report from CBRE. The first three months of this year was only the second time since 2015 that the region has posted negative quarterly absorption; in Q1 2023, absorption dipped into the red at about minus 100K square feet.
The plunge in absorption in the 143M-square-foot market was driven by a handful of sizeable sublease offerings from users who returned premium bulk spaces, according to CBRE.
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Only one of the 10 Central Valley submarkets notched significant positive absorption in Q1 — the Tracy submarket, which totaled about 174K square feet. Meanwhile, Stockton, the largest submarket in the region with an inventory of more than 47M square feet, saw negative net absorption of minus 374,669 square feet.
The total vacancy rate in Central Valley ticked up to 8.2% while overall availability remained at 10.5%, including 2.6M square feet of available sublease space. The average direct asking rate held steady at $0.74 per square foot on a monthly, NNN basis.
The region saw 3M square feet of transaction volume in Q1 2025, with 89% of all transactions coming from renewals. CBRE’s outlook projects that leasing activity will remain steady, while available sublease space is expected to level off. There were no new deliveries in Central Valley in the first quarter, while two new speculative developments totaling about 305K square feet broke ground.
“Overall market fundamentals in the Central Valley remain attractive to both investors and developers as cost of capital and construction remain the limiting factors of either moving forward,” CBRE said.
Positive absorption in the coming quarters in Central Valley will be driven by the scheduled delivery of pre-leased buildings, including a 900K square foot facility in Stockton that will become Walmart’s fifth “next-generation” fulfillment center, which deploys an automated high-density storage and retrieval system.
The largest lease transactions in Central Valley in Q1 were the renewal of 618K square feet at 24451 S. International Parkway in Tracy by toy retailer Melissa & Doug, and an extension inked by Kehe Distribution for a 454K square foot lease at 4650 Newcastle Road in Stockton.
There were three investment sales transactions in Central Valley in Q1; the largest of which was Kin Properties’ $85M purchase of a 935K-square-foot warehouse at 18100 Harlan Road in Lathrop, a deal that translates to about $91 per square foot.
In December, a joint venture between Trammell Crow and Realty Income broke ground on a 655K square foot, build-to-suit industrial facility in Stockton that has been preleased by The Home Depot. The $100M facility, located at 320 McCloy Avenue, is slated to be delivered in 2026.
The Port of Stockton issued a 50-year ground lease to Trammell Crow for the 59-acre site. The project, which will add four rail tracks to the Port’s existing infrastructure, will also include 350K square feet of outside storage space.
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