Blog #Lee & Associates industrial report

The industrial sector continues to navigate a post-pandemic normalization in Q1 2026, with moderating logistics demand, an overhang of new speculative space, and shifting tenant preferences toward smaller, flexible facilities. For investors, developers, and occupiers focused on the West Coast and Southern California, this quarter offers a mix of stabilization signals and compelling opportunities in resilient submarkets.

At Lee & Associates, we deliver unmatched local expertise and proprietary market intelligence through our Q1 2026 reports. With offices across North America and deep roots in key Western markets, our team helps clients make informed, data-driven decisions in a changing environment.

National Industrial Market Snapshot (Q1 2026)

• Net Absorption: 32.8 million SF (0.2% of inventory) — the slowest pace in over a decade outside of tariff-related dips.
• Vacancy Rate: 7.5% nationally (up significantly since 2022 as supply outpaces demand).
• Logistics Segment: 8.4% vacancy across 13.6 billion SF.
• Rent Growth: Near zero amid increased availability.
• Positive Note: Sub-50,000 SF spaces remain tight (<5% vacancy in many areas), driven by local service businesses like contractors and trades.

Development has peaked, but Sunbelt and Midwest markets still face multi-year absorption timelines for big-box product.

West Coast & Southern California Industrial Highlights

Southern California and the broader West Coast remain pivotal due to port access, population density, and diverse tenant demand. Here are the standout insights from our detailed market overviews:

Inland Empire (East & West)

• Inland Empire East: Vacancy at 10.31%, with stabilizing conditions as gross absorption moderates. Strong sales activity, including a 1M+ SF deal in Riverside. Under construction: ~1.72M SF.
• Inland Empire West: Vacancy rose to 6.09% with negative net absorption (-1.77M SF over 12 months). Availability hit 11.01%, but leasing remains active with renewals. Strong pipeline of ~2.64M SF under construction.

Los Angeles Region

• LA Central: Vacancy improved to 6.3%. Positive 12-month net absorption of ~423K SF. Asking rents ~$15.60 NNN.
• LA North: Vacancy at 7.5% with negative absorption, but orderly trends and slowing new supply.
• San Gabriel Valley (SGV): Vacancy increased to 6.0%; rents holding around $15.84 NNN.
• LA South Bay: Vacancy at 6.3%. Tenant-friendly conditions with more negotiating leverage.
• LA West / LAX: Softer flex/industrial market with higher vacancy (~8.3% overall for the segment). Tenant market favoring short-term deals and concessions.

Orange County

Positive net absorption for the second straight quarter. Countywide vacancy at 6.3% (below national average). Rents averaging ~$18.12 NNN. Notable portfolio sales and leasing deals in Fullerton, Brea, and Anaheim highlight ongoing institutional interest.

Other Key West Coast Markets

• East Bay (CA): Vacancy over 9% along the 880 Corridor — highest in a decade — but negative absorption pace is slowing.
• Phoenix, AZ: Strong demand with 4.3M SF net absorption; vacancy at 12.4%. Robust construction pipeline.
• Vancouver, BC & Calgary, AB: Tighter Canadian markets with vacancy in the low-to-mid 4% range and solid fundamentals.

Why Choose Lee & Associates for West Coast Industrial Deals?

We stand apart through:

• Hyper-Local Expertise: Our independently owned offices are operated by local principals who live and breathe their markets — from the Inland Empire to Orange County and beyond.
• Data-Driven Insights: Our comprehensive Q1 2026 reports feature vacancy trends, cap rates, absorption data, top transactions, and submarket specifics.
• Full-Service Capabilities: Brokerage, tenant representation, investment sales, and market research all under one roof.
• Proven Track Record: Since 1979, our shareholder-operator model aligns incentives perfectly to deliver superior results for clients.

Our professionals combine deep relationships, cutting-edge technology, and real-time intelligence to optimize outcomes in today’s normalizing market.

Outlook & Strategic Opportunities

While large logistics space faces headwinds, smaller bay and multi-tenant industrial properties in Southern California continue to show resilience. Port-adjacent and infill locations benefit from e-commerce, manufacturing, and local service demand. Investors should target well-located assets with near-term lease rollovers or value-add potential as supply growth moderates.

Ready to capitalize on Q1 2026 industrial opportunities in Southern California and the West Coast?

Contact me today — Ron Mgrublian, Lee & Associates — for a personalized consultation, custom market analysis, property searches, or transaction support in the Inland Empire, Los Angeles, Orange County, or anywhere on the West Coast.

Reach out to me directly to receive the complete Q1 2026 Industrial Market Report.

Source: Lee & Associates Q1 2026 Industrial Market Reports. Data as of Q1 2026.

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As we wrap up 2025, the industrial real estate sector across North America faced headwinds from U.S. trade policies and tariffs, leading to softened demand and slower growth. According to Lee & Associates' Q4 2025 Market Report, net absorption, deliveries, and rent increases all decelerated, marking a shift from the post-COVID boom. However, pockets of resilience—especially in logistics-heavy markets—suggest a potential rebound if tariff uncertainties resolve. Here's a breakdown of the highlights, tailored for investors, brokers, and industry watchers.

Overall Market Trends

• Demand Slowdown: U.S. net absorption totaled 112.5 million square feet (SF) in 2025, a 13% drop year-over-year and a staggering 78% decline from the 2021 record of 519 million SF. Over the last three years, annual absorption averaged 137.9 million SF, down from 388 million SF between 2020-2022. In Canada, overall absorption was negative, pushing the vacancy rate to its highest since 2017.
• Supply Moderation: New deliveries reached 253.6 million SF in the U.S., down 52% from 2023's peak. This brings completions back to pre-COVID levels (averaging 211 million SF annually from 2015-2019). Canada saw similar trends, with rent growth slowing to under 2%.
• Rent and Pricing Pressures: U.S. rent growth hit just 1.3%—the lowest since 2011—compared to over 10% in 2022. Warehouse-distribution spaces (68% of the 19.6 billion SF market) saw demand fall 16% from 2024. Uncertainty around tariffs has led to inventory volatility, delaying expansions, though onshoring could boost manufacturing space needs if clarity emerges from upcoming Supreme Court rulings.
• Vacancy and Cap Rates: U.S. vacancy averaged 7.6%, while Canada's was tighter at 4.8%. Cap rates stood at 7.3% in the U.S. and 5.6% in Canada, reflecting varied investor sentiment.

Key risks include oversupply in Sunbelt and Midwest markets like Austin, Indianapolis, Phoenix, and San Antonio, where big-box completions may take years to absorb. On the bright side, top absorption markets included Dallas/Fort Worth (26 million SF), Phoenix, Columbus (OH), Houston, and Indianapolis.

Standout Market Metrics

Here's a snapshot of top performers across key categories (based on CoStar-defined territories; note: Canadian figures in CAD):

Spotlight on Select Markets

The report dives into specific regions, showing varied performance:

• Calgary, AB (Canada): Ended strong with vacancy dropping to 3.14% (from 4.04% in Q3) and Q4 absorption surging to 2.73 million SF. Construction is ramping up (3.77 million SF underway), with big-box leasing driving activity. Sales averaged $192.88/SF, up from prior quarters. Top deals included a 331K SF sale to Minhas Furniture for $41.5M CAD and a 252K SF lease to Modine of Canada.
• Phoenix, AZ (U.S.): Transitioning from rapid growth, with Q4 absorption at 3.44 million SF and vacancy steady at 13.7%. Over 23.5 million SF under construction signals optimism, but tenant selectivity is rising. Rents averaged $13.32/SF NNN, with sales at $201.43/SF. Notable transactions: Walmart's 1.28M SF purchase for $152M and Amazon's 1.06M SF lease.

For Southern California markets like Los Angeles (where vacancy is 6.4%, rents $17.67/SF, and sales $323/SF), the report notes balanced conditions amid broader tariff impacts—ideal for logistics firms eyeing West Coast hubs.

Looking Ahead to 2026

While 2025 was a cooling period, the industrial sector's fundamentals remain solid, especially for e-commerce and supply chain players. Tariff resolutions could spark onshoring, boosting manufacturing demand. Investors should watch oversupplied markets for opportunities as absorption catches up. For the full report contact me directly.

If you're navigating industrial deals in Long Beach or beyond, feel free to reach out, let's discuss how these trends impact your strategy!