Blog #Los Angeles Industrial Real Estate

The Southern California industrial market is entering 2026 with a noticeably different tone than the past few years. After an extended period of aggressive rent growth and tight vacancy, Q1 data shows a market that is recalibrating—offering more flexibility and opportunity for tenants while forcing landlords and investors to adjust expectations.

A Slowing but Stable Economic Backdrop

The broader U.S. economy is sending mixed signals. Growth slowed sharply at the end of 2025, with GDP rising just 0.5% in Q4. While early 2026 projections are more optimistic, underlying demand has softened and inflation remains persistent.

At the same time, the labor market appears stable on the surface, but cracks are forming. Job growth continues, yet long-term unemployment is rising and workforce participation remains muted. Consumer spending—especially e-commerce—continues to support industrial demand, but at a more moderate pace than in prior years.

Logistics Are Being Rewritten in Real Time

One of the most important shifts happening today isn’t just economic—it’s operational.

Cargo flow through the Ports of Los Angeles and Long Beach declined modestly year-over-year in Q1. However, the bigger story is how goods are moving. A growing share of containers—now estimated at 35% to 38%—are leaving ports via on-dock rail rather than local trucking.

This shift is:

• Reducing demand for short-haul warehousing and transloading
• Increasing efficiency for long-haul distribution
• Creating new challenges for drayage operators

In short, logistics is becoming more streamlined—but also more selective in how space is utilized.

Power Is the New Location Driver

A major emerging constraint in industrial real estate is power availability.

With increasing demand from data centers, EV manufacturers, and AI-driven industries, the electrical grid is under pressure. Delivering sufficient power to a site can take 8–10 years due to infrastructure and permitting challenges.

For tenants in aerospace, defense, and advanced manufacturing, this is quickly becoming a deciding factor in site selection—sometimes even more important than location or building specs.

Market Fundamentals: Softening Across the Board

Across all major Southern California submarkets, a consistent theme has emerged: softening fundamentals and increased tenant leverage.

South Bay

• Vacancy increased to 6.3%
• Rents declined to ~$1.47 NNN (down ~9% year-over-year)
• Negative absorption signals reduced demand
• Investment activity remains selective

Mid-Counties

• Vacancy stabilized at 6.4%
• Rents fell to ~$1.28 NNN (down ~11% year-over-year)
• Sales volume dropped significantly, despite stable pricing

Central Los Angeles

• Vacancy tightened slightly to 5.5%
• Rents eased to ~$1.35 NNN
• Market nearing stabilization with balanced conditions

Inland Empire

• Vacancy remains elevated at 8.1%
• Rents declined to ~$0.96 NNN
• High supply levels continue to create competition among landlords

What This Means for Tenants and Owners

For tenants, this is the most favorable environment in years. More available space, declining rents, and increased concessions are creating opportunities to upgrade facilities, renegotiate leases, or expand strategically.

For landlords and investors, the market is demanding a more disciplined approach. Pricing is adjusting, cap rates are expanding, and deal-making requires flexibility and creativity.

Looking Ahead

The remainder of 2026 is expected to bring moderate economic growth, continued e-commerce expansion, and increasing demand from technology-driven industries. However, uncertainty remains elevated due to geopolitical risks, inflation concerns, and infrastructure limitations.

The industrial market isn’t weakening—it’s evolving.

And in this new phase, success will depend on adaptability: understanding shifting logistics patterns, anticipating infrastructure constraints, and aligning real estate strategies with where demand is actually heading—not where it used to be.

Get the Full Report

If you’d like a copy of the complete Q1 2026 Industrial Market Report with detailed data, charts, and property-level insights, feel free to reach out.

Contact me directly to receive your copy or to discuss how these trends impact your real estate strategy.

As we wrap up 2025, the San Gabriel Valley (SGV) industrial submarket is demonstrating clear momentum toward recovery after a couple of challenging years marked by rising vacancies and negative absorption. Here at Lee & Associates, we're excited to share the latest insights from our Q4 report, highlighting positive shifts that could signal stronger days ahead for tenants, landlords, and investors alike.

This overview paints an optimistic picture: vacancy rates have dipped to 5.2% from 6.2% at the end of 2024, bolstered by over 2 million square feet of positive net absorption throughout the year. Leasing activity has remained robust, with more than 9.7 million square feet transacted across 638 deals—indicating that tenants are confidently re-entering the market even as availability sits at 6.8%. Construction activity is modest at just 529,985 square feet under way, with new deliveries slowing down significantly. Meanwhile, direct average triple-net rents have moderated to $15.48 per square foot, creating a more competitive and balanced environment for all parties.

Key Market Indicators

To give you a snapshot of the quarter-by-quarter trends, here's a breakdown of the core metrics for 2025 compared to Q4 2024:

These figures underscore the submarket's stabilization. While Q4 saw a slight dip in net absorption, the full-year positive trend is a welcome reversal from 2024's challenges. Rents have adjusted downward, which may attract more cost-conscious tenants, and cap rates are holding steady around 5%, reflecting investor confidence.

Net Absorption, Deliveries, and Vacancy Trends

The SGV's recovery is perhaps best illustrated by its absorption and vacancy patterns. After negative absorption in recent years, 2025 brought a surge of positive activity, reducing vacancy by a full percentage point. Limited new deliveries have helped keep supply in check, preventing further upward pressure on vacancy rates. If this trajectory continues, we could see even tighter conditions in 2026, potentially driving rents back up.Construction remains subdued, with only about 530,000 square feet in the pipeline—a far cry from the more aggressive development seen in prior cycles. This cautious approach from developers is likely a response to economic uncertainties, but it positions the market well for organic demand growth.

Notable Sale Transactions

Investment activity picked up steam in Q4, with several high-profile deals showcasing strong interest in Class A and B properties. Here's a look at the top sales by square footage:

*Part of a portfolio sale.These transactions highlight the appeal of well-located industrial assets in Industry and surrounding areas, with prices per square foot climbing north of $240 in some cases.

Top Lease Transactions

Leasing was equally dynamic, with eCommerce, advertising, and freight sectors leading the charge. Key deals included:

These leases reflect diverse industry demand, from online retail to logistics, and underscore SGV's strategic position in Southern California's supply chain ecosystem.

Looking Ahead

As we head into 2026, the San Gabriel Valley industrial market appears poised for continued improvement. With vacancy trending downward and leasing activity holding strong, opportunities abound for businesses seeking space in this vital region. If you're navigating the market—whether as a tenant, owner, or investor—Lee & Associates is here to provide expert guidance tailored to your needs.

For more details or to discuss how these trends impact your real estate strategy, feel free to reach out to me, Ron Mgrublian, at Lee & Associates.

To receive the full Q4 2025 San Gabriel Valley Industrial Market Report (including detailed charts, net absorption trends, and additional insights), contact me directly.