Brad's Blog - Inland Empire Retail Wrap Up and Outlook for 2024

There have been a lot of articles and blogs detailing all the events of 2023. Although it’s always good to reflect back and learn from experience, at Progressive Real Estate Partners we’re more focused on understanding the current environment and looking forward.

SoCal’s Inland Empire region continues to enjoy population growth, new housing developments, job growth and an overall favorable economic environment. All of these factors are having a positive impact on the region’s retail real estate market.

As we enter 2024, I’m going to share some Inland Empire retail market statistics, observations, and what I am paying the closest attention to in this upcoming year.

A Strong Starting Point: According to Costar, as of December 31, 2023, the retail vacancy rate is 5.4% and the overall average asking lease rate is $1.84/SF (reminder this is across spaces of ALL sizes and ages and is not reflective of any individual property). The year 2007 was the last time vacancy was this low and the lease rate this high. I am not at all concerned about a repeat of the retail debacle that started in 2008. At that time, vacancies were also at a record low and lease rates at record highs, BUT the industry had also been building 5 to 7M square feet of new retail space over the previous few years with a lot of that square footage being speculative shop space. It is very different in today’s market where we are short on supply with virtually no new speculative space being built.

Minimal New Construction: Only 769K SF of new retail space was delivered in 2023. That amount is 38% below the most recent 5-year average and the last time construction levels were this low was 2011. This decrease is mostly a reflection of developers not moving forward with projects due to higher capital costs, uncertainty of construction costs, and uncertainty regarding exit cap rates or refinancing costs. The lack of construction is not a reflection of a lack of demand although the number of users that can afford the rent required to justify new construction is limited. As a result, new construction has stalled.

Sales Volume Down: Sales volume for all retail properties in the Inland Empire (whether leased investment or owner/user) was $1.2B in 2023. This is down 42% from the 2021 & 2022 average. The average property is selling for about 10% lower than the asking price, demonstrating the challenge of finding the market clearing price.

What are the factors that I am paying closest attention to as we enter 2024?

Job Growth: According to the CA Employment & Development Department (EDD), the two-county region saw an increase of 30,200 jobs from November 2022 to 2023 which is only a 1.7% increase. Job growth seems to have slowed while the labor force has increased. This has resulted in the unemployment rate increasing from 4% to 5% over this past year. Job growth is a key indicator linked to other factors such as the demand for new residential and retail development. Higher unemployment and fewer jobs are generally associated with an increase in retail vacancies. As a result, I will be watching job growth carefully as an indicator of retail demand.

New California Fast Food Minimum Wage: Although I will go deeper into this subject in my next blog, the fact that the minimum wage for fast food restaurants in California with over 60 locations throughout the U.S. is going to $20/hour on April 1 is truly mind boggling. I envision numerous unintended consequences of this law with potentially detrimental consequences to many in the restaurant industry. Will this new minimum cause fast food chains to not renew leases on their marginal locations? Will independent restaurants and regional chains have to pay the same wage or will they be able to pay lower wages due to a possible better working environment and therefore making them more competitive? What will the effect be on sit down restaurants and retailers who frequently compete for the same labor?  Ten years ago, California’s minimum wage was $8.00/hour. A 150% increase in wages over a 10-year period will likely create interesting dynamics for California’s fast food industry.

Interest Rates: My gut is that many are going to be disappointed with the Federal Reserve in 2024. There seems to be a substantial consensus that the Federal Reserve will lower interest rates significantly in 2024 and 2025. I think this is erroneous thinking. The Federal Reserve’s job is NOT to keep interest rates low. Its job is to keep inflation low and employment high. Interest rates are one of the major tools in the Federal Reserve’s toolbox. If the economy continues to grow at a modest pace and employment continues to grow modestly, then the Federal Reserve is not motivated to cash in its chips.

Furthermore, the real estate financing industry is mostly concerned about long-term rates which are generally tied to the 10-year treasury. The 10-year treasury has moderated recently. Amongst some of the reasons for this decline are lower expectations for inflation, a desire amongst some conservative investors to lock in what have been much higher Treasury returns than in years past, and possibly international investors who are seeking safety in the United States financial markets.

November Election: This election cycle is likely to be the “noisiest” ever.  What I mean by that is between traditional television news, newspapers, podcasts, social media, radio, email, texts, and more, there is likely going to be someone “speaking” to you constantly about the election.

The business community likes certainty and there is a lot of potential uncertainty this year. In my experience, markets tend to slow in the 60 to 90 days prior to a Presidential election. It is not that the outcome of the election ever seems to make a difference. Instead, when people are making major investment decisions, they hesitate to make such decisions when there is an uncertain event in the near term that they know will be answered by waiting. As such, I will be listening closely to the investors chatter as we get closer to the summer to see the impact of this year’s election.


In summary, the starting off point for 2024 is healthy for many market participants. The challenges and opportunities this year will likely be based upon the “three children” known as the economy, monetary policy and politics. Although these children are always on our mind, it seems 2024 will be a year to observe whether these children remain disciplined or get out of control.

As we start the New Year, I also want to thank you for reading my blogs and hope you have found them to be helpful and informative.  I’m always interested in hearing your feedback and welcome your comments any time. Lastly, wishing you all a happy and prosperous New Year!