Industrial Insights - November 2025

Southern California Industrial Real Estate Cycle Bottom is Forming

"Bottoming" is hard to prove in real time. For the first time in nearly two years, Southern California industrial real estate feels more optimistic again. The question CEOs are asking isn't how far rents will fall, it's how long it will take for vacancy to clear before new supply disappears. After finally having a more positive Q3, all eyes are on Q4 to further understand what this bottom is going to look like.

Market activity is reaccelerating

Leasing volume across Los Angeles and the Inland Empire is the highest it has been since early 2024. Institutional landlords are meeting the market with rate flexibility, shorter terms, and renewed urgency to fill space. Class A availability is trending sharply lower, particularly in infill LA where large occupiers are re-entering.

Vacancy is holding around 7.0-7.5% and flattening. The construction pipeline is down about 65% from the 2023 peak, and the Inland Empire pipeline now represents only about 1.7% of existing inventory. The dominant behavior among tenants remains flight to value rather than perfect specifications.

As this current block of vacancy gets absorbed, the next challenge will be undersupply. That is hard to imagine but the logical next step in the cycle further out.

REIT earnings confirm a bottom forming

Prologis just reported its best quarter in company history, signing 62 million square feet of leases and bringing occupancy up slightly to 95.3%. Lease up timelines have normalized to about 7-8 months. The legendary Chairman stated that "it is clear that we are at an inflection point," signaling stronger optimism than usual.

Rexford also posted its strongest quarter ever as well, executing 3.3 million square feet of leases and pushing occupancy to 96.8%. Net absorption was up 1.9 million square feet versus 0.4 million square feet for the market overall. Rents declined only 1% compared to 2% for the Southern California market, signaling a bottom forming. The company repurchased $150 million of stock and authorized another $500 million. Its focus is on occupancy first, capital recycling, and pausing low-yield development.

Both Prologis and Rexford expect Southern California to lag the national rebound slightly but outperform long term. Land scarcity, regulatory barriers, and proximity to dense consumption zones remain durable advantages.

Trade and port dynamics stay strong

Even with tariff turbulence, importers are not retreating anymore, rather they are hedging. September volumes dipped modestly, but the reason is timing, not weakness. The Port of Los Angeles moved 883,000 TEUs, down 7.5% year over year, and Long Beach handled 797,000, down 3.9%. Combined, the ports are still up 4.8% year to date, and the third quarter was the second busiest on record. We'll see how Q4 shakes out when peak season comes to a close.

Capital markets are re-engaging

After four years of tightening, monetary policy is finally easing. The Federal Reserve's first two 25 basis point rate cuts since 2020 and a more normalized yield curve have improved confidence. The 10 year Treasury is hovering near 4%, CMBS spreads have tightened back to 2021 levels, and core-plus funds are back in the market after sitting on the sidelines.

Class A Southern California industrial assets are trading at cap rates in the 5.0-5.5% range. This reset has drawn private capital and family offices back into the market.

Freight and logistics signals support a recovery

The Logistics Managers' Index came in at 59.3 in August, indicating expansion. Warehousing costs are up about 7% year over year, which points to continued tight capacity even as transportation rates remain soft.

UPS's second-quarter results were strong, with $21 billion in revenue and improved profit margins driven by network optimization. That's an encouraging sign that goods movement remains healthy, even with normalized volumes. Companies are focusing on proximity and reliability instead of chasing the lowest offshore cost, which favors markets like Southern California.

Regional highlights

In the Inland Empire, leasing volume has surged, now well over 51 million square feet leased year to date, the highest in the country. The Inland Empire West is stabilizing as we work through the aggressively priced sublease inventory and find the majority of deals going down near $1.30-$1.50 GRS. The Inland Empire East however still has ample inventory and more sale opportunities. More than 160 million square feet of leases will roll between 2026 and 2028, creating a large re-trade window.

In Los Angeles and the South Bay, activity is accelerating. Class A availability is falling slightly with rents are around $1.90 to $2.00 gross. With very little new construction ahead, conditions will tighten further as current vacancies are filled.

Orange County remains one of the healthiest markets in the region as usual, with rents around $1.55-$1.85 NNN for Class A and $1.40 for Class B. The tenant base is diverse, and the area's labor pool and infrastructure continue to support stable demand.

What this means for decision makers

For tenants, landlords are negotiating more on vacant buildings. Early renewals, "blend and extend" deals, and expansion opportunities are all available. This is the time to review your lease position and take advantage before vacancy tightens again in 2026. And for 2027 lease expirations, the more you can push up your lease negotiation conversations the better, as the moment there is any sign of rental rate growth that window will snap shut.

For investors and owners, repricing has largely run its course. The fundamentals are intact, and the next 12-18 months are the next buying window. Limited new supply and rising tenant demand should drive rent stabilization and incremental value creation.

For developers and lenders, equity is returning for infill and core plus projects, but capital remains selective and land pricing still has yet to bottom. The biggest hurdles now are entitlement risk and construction costs rather than just demand.

The Big Picture

Southern California's industrial market is behaving like it has found its bottom, not like it is falling further. Vacancy is stable, absorption is improving, capital is re-engaged, and tenants have made most of their big adjustments. With the Fed easing, ports operating near record levels, and developers mostly on pause, the next 12 months look like the early stages of a recovery cycle.