Industrial vacancy in the Inland Empire is on the rise, indicating a further rebalancing of the market.

Vacancy sits between 4.6% and 5.2%, by the count of a few different brokerages in Southern California. The Inland Empire is one of the country's biggest industrial markets, benefiting from its proximity to the Ports of Los Angeles and Long Beach.

NAI Capital has the Inland Empire Q3 vacancy rate at 4.8%, a five-year high by its count.

“When you compare that to where it was a year ago, at 1.5%, that's a lot of space,” NAI Capital Managing Director J.C. Casillas said. “Things have changed.”

KBC Advisors pegs the vacancy rate at 4.6%, a figure that “is expected to rise further as the wave of under construction projects are scheduled to deliver and more available space becomes vacant,” KBC Advisors Southern California Research Director Tina Arambulo told Bisnow via email. KBC data had the vacancy rate at 0.9% in the third quarter of last year.

Savills’ calculations found 5.2% vacancy in the Inland Empire, an especially stark comparison to its Q3 2022 vacancy calculation of 1.5%.

Construction deliveries, plus the swelling amount of sublease space in the market, are pushing that number up, Savills said.

The biggest obstacle for the Inland Empire is its sublease space, Arambulo said. By her count, available sublease space totaled 11M SF at the end of the third quarter, a 24% increase over the second quarter.

In Q3, leasing activity was down about 25% year-over-year. Arambulo said these factors are combining to make the Inland Empire more of a tenant’s market.

NAI Capital found 11.7M SF of sublease space in the Inland Empire, an all-time high by its count.

Construction, too, has slowed.

A robust pipeline of construction activity was a predictable response to the low vacancy rates and high demand that dominated 2021 and 2022, Arambulo said.

“There have been fewer ground-breakings and that is expected to continue [this] year due to rising construction costs, development pushbacks and decelerating rent growth,” Arambulo wrote, adding that uncertainty about the larger economy and whether a recession will materialize is also a factor.

KBC Advisors tallied about 29.4M SF under construction in Q3, a sharp drop from the roughly 41.7M SF under construction this time last year.

All three brokerages differed on net absorption, which can vary widely in the Southern California industrial market due to the immense size of many of the buildings. A variation in the way just one property is recorded — either occupied or still under construction — can tip the absorption figures one way or the other.

KBC Advisors placed absorption at 1M SF, while Savills tagged it at 4.6M SF. NAI Capital, however, found 5.7M SF of negative net absorption in Q3.

“The frenzied pace of competition for industrial space appears to be normalizing to pre-pandemic levels,” Arambulo said.