Southern California Industrial: The Sawtooth Recovery
As we look back on 2025, Southern California industrial real estate did not follow a straight line toward recovery. Instead, the year was defined by volatility, with periods of activity followed by renewed pauses. This sawtooth pattern suggests that while tenant demand exists, confidence remains fragile and highly sensitive to economic signals. The annual numbers show stabilization, but the path there matters.
The chart below (from CoStar's Jesse Gundersheim) summarizes five years of vacancy, absorption, and pricing trends across Los Angeles, the Inland Empire, and Orange County.
-- Stop and Go Momentum - Throughout 2025, activity arrived in waves rather than as sustained momentum. Strong quarters reflected pent up decisions finally closing, while anemic quarters showed tenants pulling back at the first sign of uncertainty. Demand is present, but conviction remains uneven.
-- Los Angeles Stabilization - After a historic contraction (2023 and 2024), Los Angeles returned to positive net absorption in 2025. Sale pricing remained resilient around $328 PSF, suggesting capital is beginning to price in stabilization, along with owner/user sales, even as leasing recovery continues to progress gradually.
-- Inland Empire Supply Hangover - The Inland Empire continued to post positive net absorption, but demand slowed materially relative to prior years. With roughly 13 million square feet of new deliveries entering the market (though half the historical average), vacancy increased as supply outpaced a normalizing demand cycle.
-- Orange County’s Quieter Adjustment - Orange County improved modestly though still negative on net absorption, but with significantly less volatility. Limited new supply and its infill nature continue to drive a slower, more organic adjustment rather than sharp swings driven by migration.
The broader takeaway is not about calling the bottom, but understanding the phase. 2024 was about realignment. 2025 was about volatility. 2026 will be about execution, as tenants decide when to act before leverage quietly narrows.
If you are truing to make sense of where the industrial market is headed, and how to play offense in a confusing market, give us a call. Our team is working deals every day and can help you get clear on what's next.
Justin
Justin Smith, SIOR 949.400.4786 jbsmith@lee-associates.com (mailto:jbsmith@lee-associates.com)
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