Rising multifamily supply creates new opportunities for investors in the Inland Empire

The Inland Empire multifamily market posted softer performance during the third quarter, with the vacancy rate trending higher and rents ticking lower for the first time in more than a year. Area vacancy topped 5.0% for the first time since 2011, but the current rate is only about 130 basis points higher than the region’s long-term average. One factor pushing vacancies higher in the third quarter was a slowing pace of absorption. Year to date, net absorption has totaled approximately 1,800 units, although nearly all of that total occurred in the first half of the year before a cooling pace of net move-ins in the last three months. Rents inched lower in response, ending the quarter at just over $2,000 per month. Rents had posted quarterly gains in four of the prior five periods before dropping by 0.9% in the last three months.

Only a handful of rental properties changed hands during the third quarter, with investors largely remaining selective and focused on institutional-quality assets and renovated suburban garden stock with stable rent rolls. This concentration on top-tier assets has resulted in elevated per-unit prices; the median price in sales that have closed to this point in the year is $340,300 per unit, up 14% from 2024. Among Class A properties, the median price has reached $357,700 per unit, up 22% from last year. Roughly half of all multifamily property sales this year occurred in the Greater Ontario/Rancho Cucamonga area, with the Riverside/Corona area also capturing a healthy share of activity. For properties that have changed hands, cap rates were generally in the mid-5% to low-6% range, a modest increase from 2023-2024, when cap rates were closer to 5.0%.

Looking ahead

Many of the supply-demand trends that emerged in the Inland Empire during the third quarter are likely to be somewhat temporary in nature and the market is expected to return closer to equilibrium in the coming periods. This year is forecast to be the fourth consecutive year of accelerating multifamily completions, which has given renters more options but also created increased competition for operators. The result has been an environment where operators have limited rent increases and offered more concessions in efforts to maintain occupancies. As the development pipeline tapers, supply and demand should more closely track one another, allowing market conditions to more closely track long-term trends and support rent increases.

Investors are beginning to show signs of moving off of the sidelines in the Inland Empire, a trend that is likely to continue in 2026. Several factors should support a more robust investment climate in the coming year, including a more favorable interest rate environment and a healthier outlook for operating fundamentals. Further, a potential rebound in the transportation, warehousing, and logistics sector should further promote employment, tenant retention, and investor confidence in the Inland Empire. As the region’s primary economic engine, the logistics industry has long been tied to multifamily demand in the Inland Empire, but conditions have become more complex in recent years. Institutional buyers have already begun to play a larger role, and will likely find opportunities in submarkets such as Rancho Cucamonga and Ontario.

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