Blog #q3 2025

Market Summary

• Demand Softening: Industrial demand continued to ease in Q3, with negative net absorption of -850,291 SF — the largest quarterly loss in 2025 and the 11th consecutive quarter of tenant contraction.
• Vacancy Surge: Countywide vacancy rose to 6.6%, the highest since the Great Recession (up from 1.8% over the past 11 quarters).
• Lease Rates Declining: Average NNN asking rate fell to $18.12 PSF (down from $19.20 PSF in Q3 2024).
• Tenant Concessions at Peak: Landlords offering maximum incentives to attract tenants.
• Bright Spot: Increased activity in 100,000–200,000 SF distribution & manufacturing spaces.

Key Market Indicators (Q3 2025 vs Prior Quarters)

Top Lease Transactions (by SF)

Top Sale Transactions (by SF)

Outlook

• Rising vacancy and falling rents signal a tenant-favorable market.
• Sales activity remains resilient, with average sale prices up 10% YoY despite higher cap rates.
• Construction pipeline cooling (down ~24% from Q2), potentially stabilizing supply in 2026.

Source: Lee & Associates Research, CoStar, U.S. Bureau of Labor Statistics | © 2025

Overview

The "Industrial Market Insights Q3 2025" report by Lee & Associates analyzes the Southern California industrial real estate market, focusing on the South Bay, Midcounties, Central, and Inland Empire submarkets. It highlights macroeconomic drivers, trade trends, port activity, and submarket-specific fundamentals like vacancy rates, net absorption, rents, construction, and top transactions. Overall, the market shows softening conditions with rising vacancies, declining rents in some areas, and stabilizing investor activity amid economic moderation. Ports of Los Angeles (LA) and Long Beach (LB) remain dominant U.S. trade gateways, though competition from East/Gulf Coast ports intensifies.

Macroeconomic Drivers

• GDP: Real GDP grew 3.8% annualized in Q2 2025, rebounding from a 0.6% Q1 decline, driven by consumer spending and reduced imports. Q3 growth is projected at ~3%.
• Employment: Unemployment rose to 4.3% in August, with only 22,000 jobs added (downward revisions to prior months). Wage growth of 3.7% year-over-year supports consumer spending.
• Retail & E-Commerce Sales: E-commerce sales hit $304.2B in Q2 (up 1.4% QoQ, 5.3% YoY), representing 16.3% of total retail sales ($1.87T, up 0.4% QoQ, 3.9% YoY).
• Trade Partners: Mexico leads U.S. trade at 21%, followed by Canada (17%) and China (10%). Top 15 partners account for 74.2% of activity.
• Year-End Outlook: GDP growth ~2.6% annualized in Q4, with stable consumer spending despite labor cooling and a government shutdown. Moderate expansion and cooling inflation bode well for 2026 commercial real estate.

Port Activity

LA and LB ports handled ~41% of U.S. imports by TEU market share. West Coast ports lead in throughput, but East/Gulf ports (e.g., NY/NJ, Houston) are gaining.

Submarket Summaries

South Bay

• Fundamentals: Vacancy rose to 6.9% (from 6.3% in Q2). Net absorption negative at (757,229) SF. Deliveries: 429,112 SF. Under construction: 244,786 SF.
• Rents & Sales: Average NNN rent fell to $1.48/SF (down 8.5% YoY). Building sales averaged $291/SF (cap rate 6.4%).
• Market Trends: Softening conditions with higher availability (9.5%); tenant-favorable market. Investment slowed (13 deals, $75.4M volume).
• Top Leases (all new): 19801 S Santa Fe Ave (356,642 SF, Confidential); 901 E 233rd St (221,050 SF, Custom Goods); 20846 Normandie Ave (203,877 SF, Hadrian Inc).
• Top Sales: 3700-3730 Redondo Beach Blvd (99,377 SF, $35.5M, Investment); 2959 E Victoria St (54,500 SF, $23M, Owner-User).

Midcounties

• Fundamentals: Vacancy fell to 7.3% (from 8.0% in Q2). Net absorption positive at 678,807 SF. Deliveries: 0 SF. Under construction: 493,874 SF.
• Rents & Sales: Average NNN rent at $1.30/SF (down 16% YoY). Building sales averaged $259/SF (cap rate ~5.0%).
• Market Trends: Stabilizing with lower direct vacancy; availability at 9.8%. Investment slowed (17 deals, $148.2M volume).
• Top Leases: 15614-15700 Shoemaker Ave (521,091 SF, Breakthru Beverage CA, New); 8201 Sorensen Ave (234,330 SF, Rove Concepts, Renewal).
• Top Sales: 6259 Descanso Ave (54,000 SF, $17.4M, Owner-User); 14390 Marquardt Ave (31,308 SF, $17M, Owner-User).

Central

• Fundamentals: Vacancy rose to 7.1% (from 6.8% in Q2). Net absorption negative at (465,078) SF. Deliveries: 157,715 SF. Under construction: 749,742 SF.
• Rents & Sales: Average NNN rent steady at $1.41/SF. Building sales averaged $295/SF.
• Market Trends: Slight softening; availability at 8.5%, occupancy 92.9%. Steady sales (25 deals, $190.4M volume).
• Top Leases: 8500 Rex Rd (335,600 SF, Million Dollar Baby Classic, New); 4885 E 52nd Pl (210,347 SF, Uniuni, New).
• Top Sales: 4400 Pacific Blvd (253,200 SF, $48.8M, Investment); 7400 Bandini Blvd (94,937 SF, $38.5M, Owner-User).

Inland Empire

• Fundamentals: Vacancy rose to 8.9% (from 8.1% in Q2). Net absorption negative at (746,596) SF. Deliveries: 5,299,580 SF. Under construction: 6,036,579 SF.
• Rents & Sales: Average NNN rent up to $1.00/SF (from $0.98 in Q2, down 12% YoY). Building sales averaged $252/SF (cap rate 5.9%).
• Market Trends: Balancing with high availability (12.3%); occupancy ~91%. Investment surged (55 deals, $777.2M volume).
• Top Leases: 5690 Industrial Pky (844,311 SF, iDC Logistics, New); 13052 Jurupa Ave (827,578 SF, Elogistek, New).
• Top Sales: 11991 Landon Dr (765,456 SF, $208.76M, Investment); 22491 Harley Knox Blvd (348,375 SF, $90.6M, Investment).

The report emphasizes logistics and manufacturing as key industries in transactions, with a tenant-favorable shift prioritizing occupancy over rent growth. Data sourced from AIR CRE, CoStar, and internal databases.

*Source: Lee & Associates Q3 2025 North America Market Report