Industrial vacancy just hit a cycle high. Building a warehouse got harder anyway.

Here is the obvious story. Industrial vacancy bottomed near 3.8% in mid-2022, the tightest reading in a decade, then climbed roughly 400 basis points as the pandemic-era supply wave finished landing, per Cushman & Wakefield's national industrial data tracking the cycle through Q3 2025. CBRE's Q1 2026 figures put national vacancy at 6.7%, up year over year, with availability, meaning space marketed but not yet vacant, running higher still at 9.2% (see CBRE's Q1 2026 Industrial and Logistics Figures). Rent growth cratered alongside it, from a torrid 9% to 10% annual pace in 2021 and 2022 down to roughly 1.1% at the close of 2025, the slowest since 2012, per Cushman & Wakefield's own year-end tracking. Every instinct in a normal cycle says the same thing follows automatically: when the market is this soft, developers stop chasing land, cities stop worrying about saying no, and entitlement pressure eases across the board.

That instinct is wrong, or at least badly incomplete, and the counter-evidence is sitting in Sacramento's most recent legislative session.

What actually happened to construction, and did it fix the glut?

Mostly, yes, and quickly. Quarterly industrial completions fell to roughly 54 million square feet in the first quarter of 2026, a 27% year-over-year decline and the lowest quarterly total since mid-2017, according to Cushman & Wakefield's April 2026 market report. Full-year 2025 completions landed around 281 million square feet nationally, down 35% from 2024 and the lowest annual total since 2017. Construction starts hit a ten-year low in late 2024 and early 2025, the direct result of construction-loan rates that had roughly quadrupled since January 2022, per CBRE's own accounting of the financing side of the pullback. The market did exactly what a market is supposed to do when it is oversupplied: it stopped building.

And it is working. Q1 2026 vacancy actually ticked down 10 basis points from its Q3 2025 peak to 7.0%, net absorption over the trailing twelve months ran 198 million square feet, 31% above 2024's pace, and annual asking rent growth reaccelerated to 2.1% in the quarter, nearly double the 1.1% reading at year-end 2025. Cushman & Wakefield's Jason Tolliver, president of logistics and industrial, put it plainly: "Leasing activity continues to show real durability across markets, size segments, and building types." Sixty percent of the 83 markets the firm tracks posted positive annual rent growth in the first quarter, and nineteen of them cleared 5%. This is a normal, working correction. Supply overshot, the pipeline throttled back, demand caught up. Nothing here is broken.

Which is exactly why the next part is worth sitting with.

So why did California make it harder to build a warehouse in the middle of the correction?

Because the opposition to new industrial development was never really about the vacancy rate. Assembly Bill 98, signed by Governor Newsom in September 2024, imposes the first statewide design and siting standards for new logistics buildings in the country: every city and county must amend its circulation element to route trucks away from residential streets, and every qualifying project must carry a buffer zone of up to 900 feet from a "sensitive receptor," meaning homes, schools, and similar uses (per legal summaries from Allen Matkins and the National Law Review). Those design and truck-routing standards took effect January 1, 2026 for the state's designated Warehouse Concentration Region, meaning Riverside and San Bernardino counties, the Inland Empire; the rest of California has until 2028. Senate Bill 415, signed October 3, 2025, narrowed some of AB 98's sweep, but the core buffer and truck-route mandates survived into 2026 intact for the Inland Empire. The state passed this in the same window that national vacancy sat at a cycle high and rent growth sat at a thirteen-year low.

The size threshold is the detail that should worry anyone underwriting the current cycle specifically. AB 98's strictest design tier applies to logistics buildings larger than 250,000 square feet, and an existing facility only trips the law by expanding 20% or more of its footprint, according to legal summaries from Cox Castle and Burke, Williams & Sorensen. That is precisely the size class CBRE identifies as the one segment driving real leasing momentum right now, the mega big-box format above 1.2 million square feet. The part of the market that is actually working is the part California just subjected to its toughest new siting standard.

Is this a California-only story, or the leading edge of something bigger?

Watch the pattern, not the state. California land-use rules have a documented habit of exporting themselves once a legislature somewhere else needs a template rather than a blank page, the way CEQA's environmental-review architecture shaped review statutes well beyond its own borders over the past half-century. A truck-route circulation mandate and a fixed-distance buffer zone are both far easier for another state's drafters to copy wholesale than California's original, more open-ended nuisance and environmental-justice case law ever was. That portability is exactly what should worry a national logistics developer more than the current vacancy print does.

That is not a coincidence of timing. It is a demonstration that entitlement risk and market cycle risk run on separate clocks.

The Inland Empire is where that separation is easiest to see in one place. As of early 2026, nine cities across the region, Colton, Hemet, Jurupa Valley, Norco, Perris, Pomona, Redlands, Rialto, and Riverside, sit in a partial or full suspension or moratorium posture on new warehouse and logistics entitlements, per the reporting our Inland Empire case file tracks jurisdiction by jurisdiction. Some of that posture predates AB 98; some of it implements the new state buffer and truck-route requirements directly. Either way, it is happening in the exact submarket that absorbed the largest share of the last decade's speculative big-box construction, the submarket a purely cyclical read would expect to be the most relaxed about new supply right now, precisely because it needs new supply the least.

Nine cities is not the whole region, and that matters more than the headline. Moreno Valley, one of the Inland Empire's biggest logistics hubs, explicitly declined to adopt a formal moratorium in February 2026, a divergence from its neighbors that our case file flags deliberately: do not generalize the Inland Empire as a single regulatory bloc. Real entitlement optionality still exists in specific cities inside a region that reads, from the outside, like a uniform wall.

What does this mean for anyone underwriting a spec building right now?

Stop reading vacancy as an entitlement proxy. It never was one, and the 2025-2026 cycle is the cleanest demonstration of that available. A soft market makes financing harder to get and speculative land harder to justify economically, both true and both already priced by the collapse in starts. It does not make a truck-route amendment or a 900-foot buffer requirement go away, and it does not make Hemet's or Colton's posture more permissive just because national rents are flat. The two risks move independently. A developer who assumes weak fundamentals buy political goodwill at the planning commission is making a category error, the same one a multifamily developer makes assuming a rent-control jurisdiction will loosen up because vacancy rose.

Concentration is the other half of this cycle's lesson. Mega big-box facilities over 1.2 million square feet drove the strongest leasing gains in CBRE's Q1 2026 data while smaller formats lagged, meaning the demand that is left is consolidating into fewer, larger, more capital-intensive projects exactly as the number of jurisdictions willing to entitle one shrinks. That is a genuinely bad combination for anyone hoping the next cycle looks like the last one: bigger buildings, needing bigger sites, competing for a shorter list of jurisdictions that have not yet layered a moratorium or a state buffer requirement on top of ordinary zoning. Our own industrial coverage reads that jurisdiction-by-jurisdiction posture specifically because a national vacancy print cannot tell a developer whether Perris or Moreno Valley is the city that will actually hear an application this year.

My call: AB 98's buffer and truck-route standards become the template at least two other states borrow from within three years, the way California's environmental-review playbook has migrated state to state before, regardless of where the industrial vacancy rate sits when those states act. If 2029 arrives and no other state has adopted anything resembling AB 98's buffer-zone mechanism, I overestimated how exportable this particular California export is. Either way, watch the zoning file before the vacancy report. The vacancy report will recover. The buffer zone does not sunset with the cycle.

This analysis is a source-cited research summary drawn from public records and industry reporting, not legal advice. It can contain errors and should be verified independently before any investment decision.