Q1 2026 SoCal Industrial - Executive Brief
Every major Q1 2026 Southern California industrial report is now out. Before you read any single one, the most important thing to know is that they disagree with each other. Five firms reported five different Inland Empire vacancy numbers. Five firms reported five different net absorption numbers for the same quarter. Each is correct within its own methodology. The market gave us one set of facts and three different stories. Here is what matters.
Inland Empire: Rotation, not collapse
The headlines are ugly. Four tenants each gave back more than a million SF of space in a single quarter. Keeco, Under Armour, Home Depot, and Cubework (operated by Unis) all vacated mega-box facilities, driving the worst absorption numbers the market has posted in years.
The deeper data is the opposite of ugly. Q1 leasing volume hit 22.3 million SF in the IE Core, up 22% year over year and 45% quarter over quarter. The giveback space is being replaced. Medline signed the largest Q1 IE lease at 1.02 million SF in Moreno Valley. Tireco took 1.1 million SF in Ontario. Maersk took occupancy of 1 million SF in Hesperia. Skechers 862,000 SF in Moreno Valley. Hisense and Kumho Tire each signed 500,000+ SF deals. The mega-box giveback concentrated in retail. The new demand is concentrated in 3PLs, Chinese cross-border e-commerce, tire and auto parts, and consumer goods. Different tenants, same buildings.
The supply side has also reset. Inland Empire under construction has fallen 78% from its 2022 peak. Only two 1-million SF buildings are actually under construction in the entire IE right now, both in Menifee, by Core5 Industrial Partners and Brookfield Properties. Another 39 proposed buildings of that size are entitled and waiting. The oversupply that created tenant leverage in 2024-2025 is being digested, not replenished.
The IE read: not weak. Digesting. And the supply discipline is structural, not cyclical.
Los Angeles: Motion, not momentum
LA produced contradictory signals in Q1 and they are not contradictions once you separate them. Logistics vacancy hit a record 7.4%. Tenant move-outs exceeded 15 million SF, an all-time quarterly high. Net absorption was negative 3 million SF. Every leasing metric says soft.
At the same time, LA industrial sales volume printed a 12-quarter high. Institutional capital did not wait for the leasing market to firm. It wrote checks. Aware Super, the Australian pension fund, deployed $637 million across six LA acquisitions at an average of $517 per SF in recent months, the single largest deployment in any SoCal industrial market in Q1. That is not a bet against the market. That is sophisticated capital pricing through the cycle.
The new leasing is not coming from traditional logistics. It is coming from aerospace and defense. Hadrian Aerospace, Northwood Space, Varda Space Industries, and SpaceX all signed or expanded in Q1, forming a discernible cluster in the South Bay. Amazon took two major buildings in the same quarter, a combined 1.1 million SF between Commerce and Long Beach. The LA demand composition is changing, not disappearing.
The LA read: churn, not collapse. Capital is ahead of leasing by at least two quarters.
Orange County: The late innings of a correction
Orange County is the most bifurcated market in SoCal right now. Smaller-bay product under 100,000 SF is tightening. Larger blocks, 100,000 to 500,000 SF, remain soft. The market is not one market.
The most important OC story is not a lease. It is a buying pattern. Owner-users accounted for a record 25% of 2025 OC industrial sales volume, nearly double the decade average of 14%. Future Foam bought $145 million of industrial from an institutional seller. Robinson Pharma, Jiaherb, and several others executed similar acquisitions. The total dollar volume of owner-user acquisitions hit $520 million for the year, a record. Tenants in Orange County are buying their buildings from institutional sellers rather than signing another long-term lease at renewal. That option did not meaningfully exist in 2022. It does now.
On the leasing side, the defense cluster is spreading. Anduril signed 178,000 SF in Tustin and expanded at a second Santa Ana facility. OC is becoming a second center of gravity for the aerospace and defense growth that started in the LA South Bay.
The OC read: bifurcated and structurally shifting. If you have a lease rolling in the next 24 months, the buy-versus-renew math has changed.
Three lessons for the quarter
1. Activity is not recovery. Leasing volume can rise while occupancy falls. That is LA right now and pockets of the IE. Do not confuse motion with momentum.
2. Market-wide averages hide everything. Size band, submarket, and asset age matter more in 2026 than at any point in the last decade. The 100,000 to 250,000 SF segment is a different market than 500,000+. IE West is a different market than IE East. Know which slice applies to your decision.
3. Capital moves before leasing fundamentals heal. Cap rates absorbed the rent reset. Institutional buyers are deploying hundreds of millions of dollars today while the leasing headlines still show softness. Waiting for consensus usually means missing the window.
What to do with this
If you are a tenant with a lease rolling in the next 24 months, the leverage is still available. It will not be indefinite. Sublease space, concessions, and TI packages are real today. Start the renewal conversation now, not at six months out.
If you are a landlord or considering a sale, the pricing environment is better than the leasing data alone suggests. The institutional bid is active across every SoCal submarket for the right asset profile.
If you are an owner-user or investor, the OC data in particular shows a decision window that was not available a year ago. The math on buying your building has shifted.
The offer
We have built submarket specific snapshots for each of the three Southern California markets with the named transactions, institutional capital activity, and size-band detail that applies to each. If you have a lease rolling, a building you are considering selling, or capital looking for a home, reply with your situation and I will have the snapshot specific to your footprint over to you inside 48 hours.
Reading one report tells you what that firm measured. Reading across all of them tells you what the market is actually doing. My job is to guide and inform you to help you make decisions and take action. Let me know if I can send you a snapshot for our property.
Justin
Justin Smith, SIOR
C 949.400.4786
jbsmith@lee-associates.com (mailto:jbsmith@lee-associates.com)
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