The Inland Empire, one the hottest industrial markets in the nation, is starting to show signs of a slowdown, according to a new report from Savills. In the fourth quarter, industrial vacancy in the region creeped upwards 70 basis points year-over-year, and now stands at 2.2%, while absorption dropped 83% to 1.5 million square feet. Nonetheless, due to continuing e-commerce demand, market conditions remain very healthy.

Landlords continue to raise asking rental rates, which have spiked to $1.46 per square foot in Q4, up 68% from a year ago. The largest lease in the quarter was Hines’ 1.3 million square foot warehouse renewal in Perris, CA and the largest industrial sale was NFI’s $220 million purchase of 13000 Mission Boulevard in Eastvale, CA.

Savills’ 2023 Outlook calls for persistent tight vacancy, but economic challenges and rising operating costs will likely slow rent growth. In addition, developers will continue to see pushback from Inland Empire cities on new industrial facilities.