Market Report

• Demand for industrial space declined for the tenth consecutive quarter in Q2 2025.
• Vacancy rate increased to 6.1%, up from a record low of 1.8% in late 2022.
• Higher vacancy rates have led to improved market conditions for tenants, with rental rates dropping over 10% from their recent peak.
• Reduced demand is primarily driven by concerns over tariff impacts, contributing to decreased cargo volumes at the Los Angeles port complex.
• Year-over-year container traffic in May 2025 fell by 5% at the Port of Los Angeles and by 8.2% at the Port of Long Beach.
• Rising vacancies are fostering a more balanced industrial market.
• The overall vacancy rate reached 6.1% at the end of June 2025, the highest since 2012.

South Bay Submarket Q2 2025 Overview Summary

• Vacancy/Availability: Total vacancy hit 6.4%, the highest since early 2023, with a 70-basis-point quarterly rise; available space reached 19.4 million square feet, up 2.5 million SF since Q4 2024, driven by returning leased properties and slow lease-ups; sublet vacancy rose to 1.0%, hinting at tenant downsizing; absorbing 4.8 million SF is needed to reach a 4% vacancy rate, excluding new deliveries.
• Rental Rates: Asking rents softened to $1.54 NNN per square foot from $1.61 in Q1 and a $1.69 peak in Q2 2024, marking two consecutive quarterly declines since the pandemic recovery; direct rents dropped more than sublet rents, reflecting landlord pressure from rising vacancies and slow leasing; despite high historical levels, tenants are gaining negotiation leverage.
• Construction: Only one building (504,000 SF) was delivered, with the pipeline shrinking to 742,000 SF, down 60% from 1.9 million SF a year ago, due to caution over vacancies, slow leasing, and softening rents; graded sites are on standby awaiting tenants or better conditions; no preleased projects suggest rising vacancy risks if leasing doesn’t improve.
• Leasing Activity/Absorption: Negative net absorption of -1.15 million SF marked a downturn from 544,000 SF last quarter, the third negative quarter in four, indicating tenant contraction; leasing activity fell to 1.12 million SF leased and 84 deals, below the 105-deal historical average, reflecting occupier caution, especially for larger spaces.
• Sales Activity/Investment Trends: Sales totaled 19 transactions at $93.5 million, up from 16 in Q1 but far below $375 million in Q4 2024; the average price per square foot dropped to $211.83, the lowest in over a year, as buyers adjust to vacancies and rents; cautious investor sentiment persists due to delayed Fed rate cuts and tariff uncertainty, though strong fundamentals attract future capital.

The South Bay industrial market faces challenges with rising vacancies, softening rents, and reduced activity, tempered by potential for recovery as market conditions stabilize.

Midcounties, Central, Inland Empire Submarkets also included in report

Key Points:

• Industrial space demand in Orange County declined for the ninth straight quarter in Q1.
• Asking rents dropped nearly 10% during the quarter.
• Net absorption was negative at 626,940 square feet in Q1.
• Previous absorption declines: 5.2 million SF in 2024 and 2.6 million SF in 2023.
• Countywide vacancy rate increased from 1.8% (record low) to 5.8% over two years.
• Business caution, fueled by last year's issues and election-related tariff concerns, continues to limit growth.

South Bay Submarket Q1 2025 Overview Summary

• Vacancy/Availability: The vacancy rate rose to 5.6%, up 70 basis points year-over-year, with Carson (7.9%), Compton (9.7%), and Rancho Dominguez (10.8%) seeing the largest increases. High-end properties now take 12.2 months to lease, shifting leverage to tenants. Landlords are offering more concessions, with 10.28 million square feet of vacant/available space. The market needs to absorb 5.1 million square feet to return to a 3% vacancy rate.
• Rental Rates: Average asking rents fell to $1.61 NNN, down 1.4% quarter-over-quarter and 8.0% year-over-year. After a 118% rent surge from Q2 2020 to Q2 2023, increased vacancy (10 MSF added) is driving further declines until leasing rebounds.
• Construction: Construction totals 1.4 MSF, with 360,466 SF delivered in Q1. Seven buildings are under construction, but new starts are limited, and no projects are preleased. Developers are pausing, waiting for tenants or better market conditions, which may increase vacancy if leasing doesn’t improve.
• Leasing Activity/Absorption: Net absorption was positive at 561,683 SF, but cumulative absorption since Q1 2023 is negative at -4.7 million SF. Leasing volume hit 1.3 million SF across 103 transactions, below the historical 2.5 million SF quarterly average. Buildings now take six months to lease.
• Sales Activity/Investment Trends: Investor caution persists due to high interest rates and economic uncertainty, widening the bid-ask spread. Despite lower deal volume, the South Bay attracts capital due to high rents and limited land. The region is poised for an investment rebound as borrowing costs ease.

The South Bay market faces challenges with rising vacancy and declining rents but retains strong fundamentals for future growth.

Additional Reports for Midcounties, Central and Inland Empire Included.

·  Industrial space demand has softened, raising the vacancy rate from 1.8% to 5.5% over eight quarters. 

·  Net absorption in 2024 hit its lowest level in over a decade. 

·  Rental rates continued to decline throughout 2024. 

·  Available sublet space reached a record high. 

·  Tenant activity remains weak, indicating slower business growth plans. 

·  Market uncertainty is tied to the U.S. elections and potential tariff impacts. ·

  Leasing activity fell 5.3% for the year, with Q4 down 28% from 2023. 

·  Orange County’s net absorption was negative 1.19 million SF in Q4 and negative 5.27 million SF for the year.

Southbay Submarket Key Highlights (Download Report for Midcounties, Central & Inland Empire Submarkets)

• Vacancy/Availability
  • Vacancy rate in Q4 2024 increased to 5.2%, up 80 basis points from Q3 and 130 basis points year-over-year.
  • High-end properties linger on the market for an average of 7.2 months, giving tenants more leverage in negotiations.
  • Total vacant available space expanded to 10.4 million square feet by the end of Q4.
• Rental Rates
  • Average asking rents fell 1.2% ($0.02) quarter-over-quarter and 8.9% ($0.16) year-over-year.
  • South Bay rents increased 34.1% between Q4 2020 and Q4 2024, reaching $1.63 NNN per square foot.
  • Only 76 lease transactions were completed in Q4, well below the historical quarterly average of 105 transactions.
• Construction
  • 1.37 million square feet under construction across 10 buildings in South Bay.
  • Two new buildings totaling 263,060 square feet were added in Q4 2024.
  • None of the 10 ongoing projects, including six exceeding 100,000 square feet, have been pre-leased, posing risks of higher vacancy rates.
• Leasing Activity/Absorption
  • Net absorption in Q4 2024 was -1.47 million square feet, continuing a negative trend since Q4 2022 (except for Q3 2023 and Q3 2024).
  • New leasing activity totaled 1.19 million square feet, well below the long-term quarterly average of 2.59 million square feet.
  • Average time to lease a building in South Bay increased to 6.4 months.
• South Bay Submarket: Top Leases in Q4 2024
  • 2027 Harpers Way, Torrance: Virco Manufacturing, 10/01/24, 559,000 SF.
  • 24760 S. Main St., Carson: DCW, Inc., 10/22/24, 231,008 SF.
  • 250 W. Manville St., Compton: Kair Harbor Express, 10/01/24, 206,483 SF.
  • 2230 E. Carson St., Carson: JAM-N Logistics, 10/01/24, 198,292 SF.
  • 18111 S. Santa Fe Ave., Rancho Dominguez: Air Products Manufacturing LLC, 10/01/24, 136,980 SF.
• Sales Activity/Investment Trends
  • Q4 2024 sales volume reached $375 million across 14 transactions, up from $163 million in Q4 2023.
  • Average price per square foot rose 36% quarter-over-quarter and 15.6% year-over-year, reaching $386.48.
  • Capitalization rates increased 160 basis points to 6.0%.
  • The Federal Reserve cut rates by 100 basis points in 2024, with further cuts expected in 2025.
  • Investor activity remains cautious amid policy uncertainties.
• South Bay Submarket: Top Sales in Q4 2024
  • 2501 Rosecrans Ave., Los Angeles: Rexford Industrial Realty, Inc., 12/06/24, 300,201 SF.
  • 18500 Crenshaw Blvd., Torrance: Gpjco Properties LLC, 12/05/24, 180,269 SF.
  • 2550 El Presidio St., Carson: Caroline Tseng, 10/31/24, 130,055 SF.
  • 15914 S. Avalon Blvd., Compton: Access Services, 12/02/24, 75,431 SF.
  • 14455 S. Broadway, Gardena: Aleah Miller, 11/27/24, 58,723 SF.

GDP Growth: 

• U.S. GDP grew at an annualized 2.8% in Q3, slightly below Q2's 3%.
• Consumer spending rose 3.7%, the fastest since Q1 2023, but residential investment dropped 5.1%, its second consecutive decline.
• Inflation hit the Fed's 2% target, with unemployment steady near 4%.

 Employment: 

• 254,000 jobs were added in September, the largest gain in six months.
• The unemployment rate fell to 4.1%, while wages increased 4% year-over-year.
• Upward revisions to prior months' job numbers highlight ongoing labor market resilience.

 Monetary Policy: 

• The Federal Reserve cut interest rates by 0.5% in September, lowering the federal funds rate to 4.75%-5%.
• Strong job data makes further significant rate cuts unlikely.
• Fed Chair Powell emphasized balancing inflation control with stable employment.

 Global Economy: 

• IMF projects global growth of 3.2% for 2024-2025, with risks from regional conflicts and trade disruptions.
• Emerging Asia sees growth upgrades due to semiconductor demand, while Europe faces downgrades.
• Global inflation is expected to decline from 6.7% in 2023 to 5.8% in 2024 and 4.3% in 2025.
• Long-term growth remains constrained by aging populations and weak productivity.

• The Inland Empire West submarket experienced a stall in net activity during Q3.
• Subleases and renewals dominated top lease transactions.
• Vacancy rates increased slightly, while availability trended downward.
• Pricing remained steady, but tenant concessions (e.g., free rent, tenant improvements) have risen and are now widely expected.
• Industrial construction slowed significantly, with the development pipeline at 43% of its year-over-year level.
• Institutional interest in the market continues to grow despite reduced activity.

• In Q3 2024, San Gabriel Valley's industrial market remained robust with a 6.3% vacancy rate.
• Rental rates softened slightly, now at $17.76 per square foot (PSF), NNN annually, indicating a balanced supply-demand dynamic.
• The construction pipeline remains active, with 545,702 square feet of new industrial space under development.
• The City of Industry, a dominant player in the area, accounts for 72% of SGV’s industrial space, focusing on modern Class A warehouse and distribution centers.
• As market conditions shift, tenants and developers must stay agile, seizing opportunities and addressing challenges in this thriving industrial landscape. Adaptability will be essential for maintaining a competitive edge.

• Demand for industrial space weakened countywide in Q3, with an increase in sublet space.
• Vacancy rates are the highest since 2013 but still 200 basis points below the national average.
• The decline in net absorption is the largest year-to-date drop in 15 years.
• Average rents fell for the seventh consecutive quarter.
• Countywide negative net absorption in Q3 totaled 1.3 million SF, bringing the annual total to 4.1 million SF, the highest since the 2008 financial crisis.
• The average triple-net rental rate dropped to $1.59 per SF, down from the $1.71 peak at the end of 2023.
• Q3's 5% vacancy rate is an increase from 2% in Q1 2023.

In Q3 2024, the South Bay submarket saw a continued increase in vacant space, with the vacancy rate rising to 4.4%, up 20 basis points from Q2 and 50 basis points year-over-year. Tenants are becoming more selective, taking advantage of longer decision-making periods. Despite a 7.8% year-over-year decline in average asking rents, rents remained somewhat resilient due to concessions from landlords.

Leasing activity included 1.37 million square feet of new deals, though it was below the 10-year average. Net absorption was positive for the first time in a year, at +669,007 square feet. Construction continues with 1.5 million square feet in progress, which could impact vacancy rates if demand doesn't catch up.

Sales activity increased from Q2 but remained significantly lower than in 2023. Sales volume reached $71.9 million, and average prices per square foot dropped 22.5% year-over-year to $258.92.

• Development pipeline down 57% year-over-year
• Vacancy rates up 48%
• Lease rates adjusted by 28%
• Tenant activity has resumed in the Inland Empire West industrial market
• Historic levels of positive net absorption in the submarket
• Multiple 1-million-square-foot lease transactions executed by credit tenants
• Nearly 5 million square feet of move-ins from big-box deliveries with prior year leases
• Inland Empire continues to attract institutional capital
• Class A 835,000 square foot building sold for nearly $200 million