Industrial Insights — Two REITs, One Quarter, Opposite Results

01 · Prologis

A record quarter, and guidance raised twice this year

CFO Tim Arndt put US net absorption at 66 million SF for the quarter, the highest since 2022, and said vacancy declined to 7.2% while market rents rose about 70 basis points sequentially. Retention slipped to 72.7% from 75.8%. That is worth noticing on its own: a landlord only lets retention fall when it believes it can backfill the space at a better number, and that trade only works where there is depth of demand to backfill into.

On their global book that gap is positive 17%, meaning their space would lease for more than it currently collects. Rexford's Southern California book runs the other way, which is section 02. On large format, Arndt was specific: very limited availability above 500,000 SF and none whatsoever above 1 million SF, with the tightness now migrating into midsize and smaller spaces.

Rents on rollover are up 36.9% and free rent is still widening. Those move together more often than people expect. A landlord protects the face rate because it sets the comp for the whole building, and gives the value back in months of free rent and improvement dollars. If you negotiate only on rate, you are arguing over the number they care most about defending.

Worth holding that against section 04. Prologis reports Southern California as one consolidated market. Broken into Orange County, Los Angeles and the Inland Empire, the three are not moving together at all.

02 · Rexford

A loss, a writedown, and a plan to sell $2 billion of buildings

The headline loss was $506.9 million, almost all of it a non-cash impairment of $624.8 million on assets designated for sale. Core FFO per share still grew 6.8% to $0.63, and the stock rose 7.6% on the print.

The most useful disclosure of the quarter for a tenant: Rexford puts its current portfolio at 4% above market on in-place cash rents, and the assets it plans to sell at 20% above market. Read plainly, they are selling what is furthest above market before it resets. Their rent roll shows the space rolling this year carries the highest in-place rent of any vintage in the portfolio, the 2021 and 2022 signings with four years of bumps compounded on top.

Orange County asking rent is $1.43/SF/mo NNN and Los Angeles is $1.19. The 2026 vintage sits above both. The 2027 vintage does not. Rexford's own guidance puts full-year cash spreads at negative 15% to negative 10%, so this quarter's negative 11.3% sits toward the better end, meaning they expect worse quarters than this one.

About three months of free rent on a roughly five-year term, plus $1.57/SF of improvement dollars, with annual bumps averaging 3.5%. If your renewal proposal is thinner than that on free rent, improvement dollars, term or bumps, you are being offered less than the market is currently clearing. Their COO was explicit that they will continue to aggressively prioritize occupancy to capture demand. A landlord prioritizing occupancy over rate is a landlord that will trade on rate.

Vacancy splits the same way, 4.6% under 100,000 SF against 6.3% over it. Their COO tied the weakness to Class A product and, asked which submarket, named Orange County. If you occupy over 100,000 SF in Orange County, you are standing in the softest cell of the whole table.

03 · The national picture

Net absorption is what everyone quotes; leasing volume tells you whether deals are getting done

Net absorption is the change in occupied space, so it nets your neighbor's move-out against your move-in. A market can lease a great deal of space and still print negative absorption. Leasing volume counts the deals themselves. If you want to know whether you will have competition for a building, or whether your landlord has other options, leasing volume is the better measure.

Los Angeles did 50.0 million SF of leasing at 6.6% vacancy. Phoenix did 32.7 million at 10.5%. Los Angeles is half again as busy in a market with meaningfully less availability, which means a tenant in Los Angeles is competing for space and a tenant in Phoenix is choosing between buildings. Vacancy alone would have told you Phoenix is the softer market. It would not have told you how much harder Los Angeles is to transact in. Orange County does not appear in the top twenty: it has space, but not transactions, and that is a better position to negotiate from than a tight market with heavy leasing.

Demand peaked in 2022 at 522 million SF, fell 82% to 94 million by 2025, and has since recovered to about 159 million. The part worth sitting with is the last column: vacancy has risen every year since the 2022 low, from 3.8% to 7.6%, including the two years demand was recovering. Buildings started during the peak kept delivering into the trough. Occupancy recovers first and pricing follows later, and that gap is where an occupier signs.

This runs opposite to Southern California infill. The big box demand is landing in the big box markets, Dallas, Chicago and here the Inland Empire. Orange County and Los Angeles are predominantly small and mid-bay, so a national statistic about buildings over 1 million SF is describing a product type those markets barely have. That is also why over 100,000 SF is the soft spot in infill Orange County and Los Angeles rather than a contradiction of the national trend: those markets took delivery of large-format product during the peak that does not match what they naturally absorb.

04 · Orange County, Los Angeles and the Inland Empire

Three markets, three different quarters

A single Southern California strategy will get at least one of them wrong.

Orange County vacancy is 6.9%, a 15-year high against a 10-year average of 3.6%. Asking rent is $1.43, off 12% from the 2024 peak. Sublease space set a record at 4.6 million SF. Under construction is 715,803 SF, a five-year low. Those two facts sit together deliberately: vacancy is the highest in 15 years and the pipeline has nearly stopped, so Orange County cannot build its way further into this.

A correction to the July 14 issue: it carried Orange County at positive 540,161 SF of net absorption, sourced to an investment-sales firm and flagged as provisional. The correct figure is negative 227,986 SF, and Rexford's COO independently confirmed the direction on the July 24 call. Wrong call on my part, and worth correcting properly rather than quietly.

Los Angeles tightened 22 basis points to 5.0%, the tightest of the three, with positive 2.8 million SF of net absorption, a four-year high and the third straight positive quarter after ten negative ones. Asking rent is $1.19 and still falling, down 32.4% over 36 months. Los Angeles is the clearest illustration of the lag in this cycle: space is being taken up at the fastest rate in four years and rents are still sliding.

The Inland Empire fell 70 basis points to 8.1%, still the loosest of the three, with positive 5.6 million SF of net absorption and a record 15.5 million SF leased in the quarter. Under construction is 13.1 million SF against a historical quarterly average of 21.8 million. Most of the positive absorption came in spaces over 500,000 SF, which matters if you are not a big box user.

What to do with this

Five moves off this quarter's numbers

1. Mark your in-place rent to market before your next escalation posts. If you signed in 2021 or 2022 you have had four years of bumps compound on top of a peak starting rate. Rexford's own rent roll shows that vintage is the most exposed. Most occupiers never check; they approve the escalation because it is in the document and keep paying above market until expiration.
2. Your landlord loses more replacing you than keeping you. Rexford's renewals landed 8.1% below the prior rent, its new leases 19.5% below. Backfilling an empty building is costing them more than eleven points of rent against keeping the tenant already there. If you are the sitting tenant with a possession date coming, that gap is your starting position.
3. Do the term arithmetic, not just the rate. $0.10/SF/mo on 100,000 SF is $120,000 a year and $840,000 over a seven-year term. Negotiations get argued in cents and decided in six and seven figures. On concessions, Rexford's Q2 leases averaged 3.3 months of free rent with tenant improvements at $1.57/SF, a benchmark you can negotiate against.
4. Find out whether your landlord has become a seller. Rexford announced roughly $2 billion of non-core dispositions and quadrupled its disposition guidance. A landlord preparing to sell values a clean, extended rent roll, and that changes what it will trade for term. Worth knowing which side of that your building sits on before you open a renewal.
5. Stop treating Southern California as one market. Orange County is at 6.9% with negative absorption. Los Angeles is at 5.0% and tightening. The Inland Empire is at 8.1% and just posted a record leasing quarter. Within Orange County alone the spread runs from 6.4% to 8.4% by submarket. One regional strategy will get at least one of those wrong.