Retail Lease Analysis

Vacancy rates in the Inland Empire have risen by 60 basis points since the end of 2023, driven by new supply entering the market and an uncommon loss of tenant occupancy. While vacancy has edged up from historic lows, it remains relatively tight, standing at 6.0% in the fourth quarter of 2024. Demand for prime retail space is still strong, with the median time available on the market now under 12 months—faster than pre-pandemic leasing trends.

The most competitive retail submarkets in the Inland Empire are those experiencing rapid housing development. For example, the Airport Area and South Riverside submarkets have availability rates below 5% and higher net absorption over the past year compared to eastern areas with slower growth in housing and population.

Net absorption, which had been robust at approximately 2.5 million square feet annually in 2021 and 2022, slowed significantly in 2023 due to a shortage of attractive vacant space. In 2023, absorption dropped to 585,000 square feet, and the first three quarters of 2024 saw a net loss. Key vacancies include an 86,600-square-foot freestanding building at 14444 Atstar Drive in Victorville (formerly occupied by Howard's), a 134,000-square-foot building at Montclair Place mall (previously Nordstrom), and an 80,500-square-foot space in Highland Avenue Plaza (vacated by Bundle City Outlet).

The second quarter of 2024 also saw 99 Cents Only vacate over 109,000 square feet at Date Palm Plaza in Cathedral City. This site, which includes seven developable pads, is now available for lease at $12–18 per square foot (modified gross) or for sale at $13.9 million as a redevelopment opportunity. Similarly, Sears vacated a 78,000-square-foot space at The Mall of Victor Valley. In the third quarter, additional move-outs from retailers like Kmart and Big Lots kept net absorption negative.

New leasing activity in 2023 and 2024 has averaged less than 1 million square feet per quarter, falling short of the previous three-year average and 25% below the prior decade average. As a result, availability has risen by 1.3 million square feet since early 2023, reaching 13.3 million square feet (6.5% of inventory).

Historically, availability in the Inland Empire has been higher than the national average, partly due to an oversupply of outdated inventory. The demolition of the long-vacant Carousel Mall in downtown San Bernardino in late 2023 helped clear some of this excess. In recent years, older big-box spaces have been repurposed for uses like cannabis cultivation, RV storage, and general warehousing rather than traditional retail.

Retail in the Inland Empire caters primarily to local consumers rather than leisure travelers, with neighborhood centers making up about 40% of inventory—well above the national average of 26%. Rising demand for both in-line and anchor spaces in neighborhood centers drove availability to a 25-year low of 7.9% at the end of 2023, though it has since increased to 8.8%. Mall availability rose more sharply in 2023 and continues to trend slightly higher in 2024, now at 8.2%. Meanwhile, strip and power centers report availability rates of 6.1% and 6.0%, respectively, while freestanding retail buildings remain at 6.0%.

Experiential entertainment providers are an emerging trend. In 2024, Ninja Factory leased 14,000 square feet in Rancho Cucamonga, and The Axe Lair took 6,500 square feet in Upland. Gyms continue to expand, with EOS Fitness signing two leases in 2024 and Garcia Boxing Gym opening in Moreno Valley. Dollar Tree also added over ten new locations in 2024, many taking over former 99 Cents Only stores.

Grocery stores are driving significant leasing activity. Vallarta Supermarkets signed a 60,000-square-foot lease at Orchard Plaza in Rancho Cucamonga in early 2024, following deals for 50,000 square feet in Hemet Village in 2023 and Van Buren Marketplace in Jurupa Valley in 2022. Grocery Outlet has also been active, leasing a total of 75,000 square feet across four locations in 2024.

Source: CoStar Research