The Data Center That Ate the Warehouse Isn't Coming to the Inland Empire

Citrus Belt Review: In Southaven, Mississippi, this January, a contract-logistics company called GXO told 220 warehouse workers their building had been sold and they were done. The buyer was a shell entity tied to Elon Musk's xAI, and the warehouse is becoming a data center. It is the cleanest example yet of a national trade: the AI buildout converting the physical economy of boxes-on-shelves into the physical economy of servers-and-cooling. The Inland Empire owns more of that first economy than any market in the country — roughly 660 million square feet of it. The obvious question is whether the trade is headed here. The answer, for the scale that matters, is no, and the reasons are worth understanding.

Start with the thing that looks like an invitation. CBRE put IE Core industrial vacancy at 7.8% in the first quarter, with 4.7 million square feet of negative absorption — four full million-square-foot blocks went dark in a single quarter. Colliers, counting the wider market, found about 53.6 million square feet sitting empty. Development has fallen to a 15-year low. On paper, that is exactly the surplus of large, power-served, freeway-adjacent buildings an AI developer might convert. The Southaven precedent says the conversion is technically live. So why doesn't it land here?

Because a data center is not a warehouse with better tenants. It is a power plant with a roof. Hyperscale siting in 2026 follows one variable above all others — where firm electricity can be secured fastest — and on that variable the IE is close to the worst address in the country. Synergy Research's pipeline shows Texas and the Midwest moving from a third of national hyperscale capacity toward more than half, with new gigawatt-scale campuses landing in Abilene, Mount Pleasant, South Bend, El Paso. The common thread is cheap, fast, abundant power. The IE offers the opposite: SCE residential rates run around 34.5 cents per kilowatt-hour and climb to 58–74 cents at peak, among the highest in the nation, and the region is still building basic transmission reliability — the Riverside Transmission Reliability Project, ordered back in 2006, is only now finishing. A market that needs a two-decade project to firm up its existing load is not a market with a spare gigawatt for a server farm.

Then there is the land itself, which is already spoken for. The IE's empty buildings are empty because logistics tenants consolidated or relocated, not because the land lost its logistics value. CBRE's brokers describe leasing already rebounding — 22.3 million square feet in the Core last quarter, up 46% — much of it third-party logistics and tire distributors taking exactly the big-box space a data center developer would have to outbid them for. Warehouse economics, even soft warehouse economics, still clear at this dirt. A vacant building is not a vacant use.

And the politics have hardened from headwind into wall. In June, Monterey Park passed what is being called the first municipal data center ban in the nation. Imperial County residents — where the region's one genuinely large AI proposal, a near-million-square-foot campus, actually landed — are gathering signatures to prohibit data centers outright. In Sacramento, Senator Sasha Renée Pérez, whose district includes parts of the IE, has introduced the Data Center Community Accountability Act, while AB 2170 would strip CEQA exemptions from industrial projects within half a mile of "overburdened communities" — a CalEnviroScreen category that blankets much of the Inland Empire. A region that has spent fifteen years fighting over warehouse air quality is not about to wave through the most power-hungry land use yet invented.

None of which means the IE has zero servers. Small colocation facilities operate in Riverside and San Bernardino, and edge computing — modest, distribution-adjacent, latency-driven — has a plausible future here precisely because the population is large and the freight is dense. But edge is not hyperscale, and the distinction is the whole point. The facility that ate the Southaven warehouse was a two-gigawatt-class ambition chasing the cheapest electrons in America. The IE sells the most expensive electrons in America, on land that already has a buyer, in a county that will sue.

So the inversion is this. The national story is that warehouses are becoming data centers, and a region with the most warehouses should feel the most exposed. The IE's specific economics run the story backward: the same density that built the warehouse empire — coastal-adjacent land, port-driven demand, contested air, strained grid — is what makes it the wrong place to build the thing replacing it. The logistics economy here isn't threatened by conversion. It's protected, perversely, by everything that makes it expensive. The data center that ate the warehouse will eat one in Texas instead.