Industrial Insights - May 2025
Inland Empire vs Las Vegas vs Phoenix
The three Southwest industrial markets have reached near-parity in lease rates as supply disruptions stabilize. The Inland Empire is bottoming out, Las Vegas shows modest activity, and Phoenix continues delivering substantial new product into a market with high vacancy, suggesting ongoing rent softening.
Rent & Pricing Dynamics
Inland Empire industrial rents have declined significantly—dropping 33% from peak levels to $1.10 per square foot, making it the cheapest option among Southwest markets. Las Vegas and Phoenix both stabilized at $1.12 per square foot. However, tenant improvement packages vary: Phoenix offers $10-15 per square foot, Las Vegas provides $8-12 per square foot, while the Inland Empire offers minimal packages of $3-5 per square foot.
Vacancy & Availability Trends
The three markets show distinct vacancy patterns. The Inland Empire tightened to 6.3% vacancy (down 50 basis points), signaling landlord leverage returning. Las Vegas rose to 9.1% (up 50 basis points), maintaining moderate tenant favor. Phoenix spiked to 11.2% (up 60 basis points), creating maximum tenant negotiating power with availability rates of 10.1%, 10.8%, and 13.2% respectively.
Construction & Supply Pipeline
Construction pipelines reveal future market dynamics. The Inland Empire has 10.8 million square feet under construction—representing a 12-year low and 74% decline from peak. Las Vegas maintains disciplined development at 5.6 million square feet to balance supply. Phoenix's substantial 12.6 million square foot pipeline promises continued oversupply, with Q1 new deliveries of 2.0 million, 1.3 million, and 7.4 million square feet respectively.
Absorption & Demand
The Inland Empire led with robust 4.8 million square feet net absorption, demonstrating strong tenant demand. Phoenix followed with solid 4.1 million square feet but still trails its massive supply additions. Las Vegas lagged significantly at 296,000 square feet, reflecting economic headwinds in the gaming-dependent market.
Large-Block Availability
Big-box space availability varies dramatically. The Inland Empire offers 65 blocks exceeding 500,000 square feet totaling 26.6 million square feet despite tightening. Phoenix provides 15+ buildings over 500,000 square feet with 11.5 million square feet available for expansion. Las Vegas shows limited large-block inventory, constraining growth opportunities.
Market Timing & Strategy
Optimal leasing strategies reflect underlying conditions. The Inland Empire favors 3-5 year terms with minimal 1-3 month free rent as landlord leverage returns. Las Vegas supports 5-7 year commitments with 6-9 months free rent in balanced markets. Phoenix's oversupply justifies 7-10 year terms capturing 9-12 months free rent during peak tenant leverage.
Podcast Interview
A featured interview discusses warehouse efficiency optimization with Mike Meyer of Lully. The discussion covers how to improve warehouse management systems without equipment or process changes—potentially lowering peak season labor needs, increasing service levels, decreasing pick times, and improving profitability during scale and growth phases.
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Contact: Justin Smith, SIOR, Senior Vice President | Principal, Lee & Associates, Irvine. Phone: 949.790.3151
