Economy
Inland Empire (IE) nonfarm employment grew by 12,700 jobs, or 0.7% year-over-year (YOY), between August 2025 and August 2026. Private education and health services led employment gains, adding 17,900 jobs (+5.2% YOY), primarily driven by healthcare and social assistance (+17,200 jobs). The trade, transportation and utilities sector followed, adding 5,900 jobs (+1.3% YOY). Conversely, professional and business services recorded the largest employment decline, shedding 5,700 jobs (-3.6% YOY).
Despite gains in nonfarm payroll employment, civilian employment declined by 31,400 workers YOY, while the labor force contracted by 39,200. The decline in unemployed residents contributed to a lower unemployment rate, from 6.2% in August 2025 to 5.9% in August 2026. However, the rate remained above the quarterly average of 5.2%.
Looking ahead, employment growth is expected to remain positive but moderate, with total employment projected to increase by 1.6% in 2027, below the region's five-year historical average of 2.5%.
Supply and Demand
The IE market's overall vacancy rate held steady at 8.6%, unchanged quarter-over-quarter (QOQ) but up 80 basis points (bps) YOY. The IE maintained the lowest office vacancy rate in Southern California, supported by relatively affordable occupancy costs and limited new supply compared with coastal markets.
The direct vacancy rate increased 10 bps QOQ and 80 bps YOY to 8.3%, as tenant move-outs outpaced occupancy gains during the quarter. Meanwhile, sublease vacancy held steady at 0.3%, unchanged QOQ and YOY. Limited sublease availability suggests that tenants reducing their footprints are generally vacating space rather than offering excess space for sublease.
Affordability remains one of the IE's strongest competitive advantages, particularly relative to Los Angeles and Orange County. Lower occupancy costs continue to attract healthcare users and small and mid-sized businesses seeking cost certainty and workforce accessibility, supporting occupancy despite moderate leasing activity. While the market recorded 19,769 square feet (sf) of positive net absorption in Q2 2026, these gains were insufficient to offset occupancy losses in Q1 and Q3. In Q3 2026, the IE recorded 1,726 sf of negative net absorption. Despite a 53,755-sf move-in and several other notable occupancies, four move-outs exceeding 10,000 sf each offset much of the quarterly gains. Accordingly, year-to-date (YTD) net absorption totaled -52,291 sf.
Submarket performance was mixed during the quarter. The Inland Empire West (IEW) recorded the largest occupancy decline, posting 32,114 sf of negative net absorption following several large move-outs. Vacancy increased to 10.1%, up 40 bps QOQ and 90 bps YOY. The Inland Empire East (IEE) posted 26,483 sf of positive net absorption, contributing to a decline in vacancy to 8.1%, down 30 bps QOQ but up 150 bps YOY. The Inland Empire South (IES) recorded a modest 3,905 sf of positive net absorption. Vacancy declined to 6.6%, down 10 bps QOQ and 80 bps YOY.
Despite net occupancy losses, new leasing activity improved during the quarter. In Q3 2026, new leasing totaled 305,957 sf across 123 transactions, up 6.5% QOQ and 31.3% YOY. Through Q3 2026, new leasing totaled 827,040 sf across 357 transactions, down 12.7% YOY compared with elevated activity during the first three quarters of 2025.
Future Inventory
Developers continue to exercise restraint, particularly in the traditional office sector. Medical office remains the primary focus of new development, supported by strong preleasing, favorable demographics and resilient healthcare demand. The limited development pipeline is expected to minimize additional supply pressure and support vacancy stability in the near term.
Pricing
Average asking rent reached $2.33 per square foot (psf) per month on a full-service gross basis, up 0.8% QOQ and 2.3% YOY. The increase may partly reflect the composition of available inventory, as Class B properties accounted for 59.4% of Q3 leasing activity, potentially leaving more higher-priced Class A space available. Class A asking rent averaged $2.54 psf per month, up 1.7% QOQ and 1.4% YOY. By submarket, IEW asking rents averaged $2.41 psf, up 4.9% YOY. IES averaged $2.47 psf, up 2.3% YOY, while IEE recorded the slowest annual rent growth, with average asking rent of $2.18 psf, up 0.7% YOY.
