Industrial landlords in Southern California’s Inland Empire — the most active Western U.S. warehouse and logistics hub — are coming up with ways to cope with a major drop in demand after years of tenant expansion.
Tenants in the region packed with warehouses about 60 miles east of downtown Los Angeles have vacated 4 million square feet more than they moved into in the second quarter. That ranked among the steepest quarterly occupancy losses of any U.S. industrial market in the quarter, CoStar data shows. The Inland Empire's vacancy rate sits at a 15-year high of 8.5%.
Landlords are responding by offering rent concessions, leaning into renewals and marketing top-tier properties. New leasing is happening, but tenants are pickier than usual, landlords say.
The spike in vacancy “presents an interesting dilemma for landlords,” said Monique Snowden, vice president of asset management at CapRock Partners, the owner of 35 industrial properties in the region. Some landlords may even "consider elevated tenant credit risk" to fill space, Snowden said, while others will negotiate cheaper rents to renew existing tenants.
The fallout is concentrated in large-format warehouses, where retailers and third-party logistics firms have largely halted dealmaking. Companies including Forever 21, Kohl’s, Harbor Freight Tools and Home Depot have given up major spaces across the region as firms recalibrate property needs in the face of macroeconomic uncertainty such as tariffs. Chinese-manufactured goods are most commonly imported through Southern California ports, according to CoStar research.
“They’re waiting on interest rates, watching consumer spending and tariffs,” said Alex Filler, senior director of investments at Dedeaux Properties, the owner and manager of 14 million square feet in the region.
The Inland Empire isn’t alone in its reset. Nationwide, industrial tenants vacated more space than they moved into last quarter for the first time in 15 years, according to CoStar analytics. The U.S. industrial vacancy rate hit 7.5%, its highest level in more than a decade.
Construction outpaces demand
While construction starts are slowing, completions continue to outpace demand. This imbalance has pressured leasing markets across the country, especially in regions that saw record-breaking development during the pandemic-era boom.
“Much of the current rise in vacancies is a correction from the pandemic-era demand surge and record-breaking construction deliveries,” Snowden said. “This cycle will take time to work through, but have no doubts about the resilience in the Inland Empire.”
Dedeaux Properties recently secured a full-building lease in Fontana with global third-party logistics firm Pilot Air Freight. The tenant signed a long-term lease for a newly completed 165,000-square-foot warehouse at 14457 Slover Ave. The building is one of five Dedeaux projects totaling 800,000 square feet that it completed in the past year.
“We recognize we’re in a slow leasing environment,” Filler said. “But even with all the macro items in the background, we were able to lease at market rates and get really-good-credit tenants into our buildings.”
At CapRock Partners’ Palomino Ranch Business Park in Norco, four leases were signed this quarter. Snowden said the deals reflect tenant-specific solutions in a competitive market.
“We focused on each tenant’s specific needs,” Snowden said. “Some were concerned about moving costs, others needed additional time to establish operations within the facility. We approached each lease with creative economics.”
Rents fall
Industrial rents in the region fell 3.4% in the past year and remain 25% below the peak seen in 2023.
Standard warehouse space has become oversupplied, while specialized assets — such as cross-dock terminals and trailer yards — are seeing steadier demand.
“Tenants definitely have a lot of properties to choose from, and most of them prefer to be in western Inland Empire,” Filler said. “It takes more to close a deal in the east.”
Class A product is drawing activity from users seeking upgrades while pricing is favorable. But landlords must offer concessions and flexibility to compete.
“Tenants’ flight to quality due to competitive pricing on Class A product will make renewal negotiations more complex,” Snowden said. CapRock has seen a rise in tenant requests for lease customization, rent abatement and flexible terms compared to a year ago.
Inland Empire East may face more pressure, Snowden added, particularly in the 250,000- to 500,000-square-foot range, where availability is exceeding 20%.
Signs of rebound
Despite the short-term slowdown, some signs point to a longer-term rebound across the country. The Port of Los Angeles handled more than 892,000 units in June, the busiest month in its 117-year history, as importers rushed to bring in goods ahead of possible tariff hikes.
Bigger deals are returning to the Inland Empire, with IDC Logistics recently inking two major leases to add more than 1.1 million square feet in the region.
Prologis, the nation’s largest industrial property owner, has raised its full-year leasing forecast — an encouraging signal that demand fundamentals remain intact.
While uncertainty is clouding short-term strategy, the long-term view among owners remains optimistic.
“Many logistics users are right‑sizing portfolios, renewing in place instead of expanding, or shifting from older San Gabriel Valley and Los Angeles properties into Inland Empire Class A product,” Snowden said.
He added that “uncertainty delays decisions — this sentiment is affecting tenants’ actions throughout the U.S.”