Orange County Industrial Market Update: Leasing Trends and Future Outlook

In 2025, Orange County’s industrial market is transitioning from a period characterized by tight conditions and rapid rent increases into a more measured phase. The overall vacancy rate has inched up to 5 percent, marking the twelfth consecutive quarter of increases. Despite this trend indicating ongoing softness, there is a significant milestone worth noting: net absorption has turned positive for the first time in two years, with tenants absorbing approximately 45,900 square feet in the fourth quarter. This modest gain suggests a foundational shift in tenant behaviors and operational strategies as the market recalibrates rather than retreats.

While full-year figures still reveal nearly 929,000 square feet of negative net absorption, this is a notable improvement compared to the approximately 2.7 million square feet returned to the market in 2024. This decline in returned space indicates that companies, especially in logistics and distribution, have largely completed their downsizing efforts. The stabilization in tenant behavior hints at a cautious optimism moving forward, despite evolving market dynamics that could influence future demand levels.

Economic conditions in the region present a mixed backdrop for industrial leasing. Over the past year, Orange County saw a modest addition of around 4,200 nonfarm jobs, mainly concentrated in sectors like private education, health services, government, and leisure. Conversely, sectors tied to industrial activity have experienced losses. Notably, construction employment decreased by about 4,800 jobs, with manufacturing sectors shedding around 1,800 positions. These trends have limited the demand for warehouse, manufacturing, and construction-support spaces, signaling that a cautious sentiment remains dominant among potential tenants.

Trade activities at Southern California ports saw high levels early in the year but began to lose momentum towards the end of 2025. Container volumes approached record levels at the Port of Long Beach, but uncertainty surrounding tariffs and changing global trade patterns led to a shift in inventory strategies. Rather than expanding operations, many importers shifted their focus towards maintaining operational efficiency. As a result, leasing transactions in 2025 amounted to about 1.6 million square feet, marking a nearly 12 percent decline compared to the previous year. Despite the downturn in leasing activity, average asking rents in Orange County have shown resilience, rising slightly to $1.56 per square foot in Q4, indicating landlords’ strength in maintaining pricing.

Leasing activity in the last quarter of 2025 has predominantly involved larger, highly specific requirements. Significant commitments were recorded primarily in North County and the Greater Airport Area. An example includes Paper Mart, which signed a lease for 264,732 square feet at 2164 N. Batavia St. Additionally, Mohawk Carpet leased 190,800 square feet at 6300 Valley View Ave. These transactions demonstrate a trend where existing operational footprints are being reinforced rather than pursuing expansive growth strategies. Meanwhile, smaller-scale leasing activity highlighted a mix of renewals and direct leases in North County and the Greater Airport Area as businesses prioritize accessibility and established operational bases.

Despite the overall decline in leasing velocity, construction activity has remained robust but increasingly disciplined. Approximately 1.7 million square feet of industrial space is under construction, yet only 30 percent of that area has secured pre-leasing commitments. In response, developers are pivoting towards build-to-suit projects tailored to specific tenant needs, reducing reliance on speculative developments. The emphasis is on ensuring leasing certainty and predictable cash flows, as evidenced by noteworthy projects such as the 313,214-square-foot South Coast Technology Center, catering to varying tenant requirements.

Sales activity in Orange County’s industrial sector has also shown signs of moderation, with transaction volumes totaling around $334 million in the fourth quarter, down nearly 8 percent from the previous quarter. The average sale price per square foot declined to $343, reflecting cautious sentiment among investors. Even with the Federal Reserve implementing rate cuts in 2025, many potential buyers are adopting a wait-and-see approach before making significant investment decisions. Pricing discrepancies among transactions are linked more to asset specifics and buyer strategy rather than a uniform market trend.

Looking ahead, the industrial market in Orange County appears poised for gradual stabilization in contrast to a quick rebound. Factors such as land supply constraints and proximity to essential ports provide enduring support, while near-term leasing will likely remain selective. As trade flows normalize and a focus on operational efficiency takes precedence among occupiers, the next phase of market evolution will revolve around disciplined development, tenant retention, and gradual absorption gains rather than overt growth measures.

Understanding these dynamics is crucial for stakeholders seeking to navigate Orange County’s industrial leasing landscape effectively. While the market is adjusting to new realities, opportunities exist for those willing to adapt to the changing environmental context.