Southern California Industrial Real Estate: Evolving Trends and Market Dynamics

Southern California has long been a cornerstone of the industrial real estate market, driven primarily by e-commerce growth, imports, and a robust construction boom. However, recent data indicates a shift in this paradigm. As of late 2025, the market dynamics are changing, with tenants gaining leverage and pricing momentum waning, particularly in major hubs such as Orange County, Los Angeles, and the Inland Empire. Understanding these trends is vital for stakeholders, investors, and potential tenants navigating this evolving landscape.

Orange County: The Pinnacle of High Rents

At the forefront, Orange County stands out with in-place rents peaking at $17.25 per square foot, marking it as the highest in the nation. However, the landscape is nuanced; while rents are elevated, new lease spreads have decreased significantly. Recent leases in Orange County averaged just $0.88 per square foot above existing rates, signaling a marked shift in negotiating power from landlords to tenants. This decline in lease premiums indicates that tenants are now negotiating better terms than they could a couple of years ago, reflecting a cooling market.

Los Angeles: A Shift in Dynamics

In stark contrast, Los Angeles, typically recognized as the largest industrial market in the region, is experiencing a notable downturn. The area is now reporting negative lease spreads of –$0.87 per square foot. This downturn suggests that new tenants are paying less than existing tenants for comparable spaces, a significant departure from the previous trend of increasing rents. As a result, Los Angeles joins other Western markets where tenant negotiating power has increased significantly, marking a pivotal moment in the industrial real estate landscape.

Vacancy Rates Rise Amid Slower Leasing Activity

Compounding these rental trends is the increasing vacancy rate across Southern California’s industrial markets. Orange County’s vacancy rate has surged to 8.5% as of November, representing a notable 420 basis point increase year-over-year, while the Inland Empire’s rate climbed to 8.4%, and Los Angeles faces a similar fate. This upward trajectory in empty spaces is attributed to a wave of recent construction, a phenomenon driven by aggressive development from 2020 to 2024 that saw over 2.5 billion square feet of industrial space built nationwide. As these new spaces come on the market, the absorption rates are slowing, causing vacancies to rise.

Construction Pipeline: A Decrease in Activity

Despite the current challenges, Southern California’s construction pipeline is currently modest compared to its competitors in the Sun Belt and Midwest regions. As of early December, only 13.6 million square feet of new industrial space was under construction, with the Inland Empire leading with 8.1 million square feet followed by Los Angeles (4.4 million) and Orange County (1.1 million). While the pipeline in Orange County has seen a 25% increase from the previous year, it pales in comparison to more robust markets like Phoenix and Denver. The latter continues to experience explosive growth, emphasizing the competitive landscape across the country.

Higher Rents, Investor Interest

Even amid rising vacancies and declining lease spreads, industrial rents in Southern California remain significantly higher than the national average. The Inland Empire is currently averaging $11.82 per square foot, while Los Angeles’s average stands at $15.65. Both markets experience year-over-year growth, outpacing the national in-place rent of $8.76. For investors, pricing appears to be easing as leasing activity softens. Despite this, Orange County still commands the highest acquisition prices at $305 per square foot, albeit down 3.2% from last year. The region remains an attractive industrial investment destination, attracting $2.3 billion in sales volume to date, indicating continued interest from capital sources.

Navigating Future Trends: A Recalibration, Not a Collapse

As Southern California navigates this transitional phase, the sentiment is not one of collapse but rather recalibration within the industrial real estate sector. Factors influencing this evolution include changing trade policies, shifts in manufacturing trends, and automation advancements, all of which have tangibly altered tenant demand. The recent changes in tariff policies have made companies reconsider their leasing strategies, adding an additional layer of complexity. Therefore, while vacancies rise and lease spreads shrink, the overall resilience of the Southern California market persists. With the balance of power shifting toward tenants, especially large logistics and manufacturing firms, it remains essential for stakeholders to remain agile in this rapidly evolving landscape.

In conclusion, Orange County and the broader Southern California region are experiencing a significant shift in industrial real estate dynamics, changing the conversation around leases, rents, and market strength. Understanding these fluctuations is crucial for making informed investment and leasing decisions in an ever-evolving market.