Industrial vacancies in single digits, while professional businesses continue to reevaluate their space needs
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During the first quarter of 2025, a surge of imports raced through the ports of Los Angeles and Long Beach as importers stocked up ahead of U.S. tariffs. It was a notable bright spot after a realignment led to an industrial slowdown following years of growth that peaked during the period immediately following the pandemic. Port traffic declined year over year in both April and May.
Although industrial vacancy rates hover in the mid-single digits across most markets in Southern California, asking rates dropped and developers have slowed new construction in response to the market’s adjustment in the face of economic headwinds. In the Inland Empire, new construction fell to 9.1 million square feet, which is the lowest volume in nearly four years. That construction figure is lower than areas such as Dallas, Phoenix and even the Pennsylvania I-81/I-78 Distribution Corridor.
“The Los Angeles industrial market is still undergoing a significant realignment following years of rapid growth, as institutional owners are actively recalibrating strategies while occupiers are capitalizing on the current market conditions. Despite some challenges, we’re seeing promising signs of renewed confidence, with both investors and tenants becoming more active as the market evolves,” said Robert Thornburgh, regional president of the Southwest region for brokerage firm Cushman & Wakefield.
On the office side, tenants continue to re-evaluate space needs and aggregate net absorption was greater than 1 million square feet across Los Angeles, Orange and San Diego counties in the second quarter.
The lone bright spot was the Inland Empire with net absorption of 181,000 square feet. Nevertheless, unemployment rates across Southern California have held steady.
One standout office transaction was Oaktree Capital’s new lease for approximately 220,000 square feet in Downtown Los Angeles. It will move a few blocks from Wells Fargo Center North to City National Bank Tower in a significant commitment to the Downtown core. In Orange County, large leases were signed by healthcare and education tenants, including the Regional Center of Orange County, UC Irvine and UC Irvine Health.
“We are optimistic about the Los Angeles market’s longer-term resilience and believe this shift sets the stage for future growth and innovative approaches to office space utilization,” said Thornburgh.
LOS ANGELES COUNTY
The Los Angeles office market vacancy rate edged up to 24.1% and net absorption declined for the 12th consecutive quarter as tenants continued to recalibrate space needs and delay decision making amidst evolving workplace strategies, according to data provided by Cushman & Wakefield. Overall leasing activity was sluggish as just 1.4 million square feet transacted, which represents a sharp 50% drop quarter-over-quarter. Market-wide asking rents moved upward to $3.64 per square foot per month on a full-service gross basis. Rates are highest in West Los Angeles, where the overall asking rate was $5.14 per square foot per month. By industry, financial activities dominated leasing volume, accounting for 584,207 square feet in both new deals and renewals, bolstered significantly by Oaktree’s 220,000-square-foot lease in Downtown Los Angeles.
On the industrial side, vacancies have climbed to 4.8%, which is the highest level in a decade. The availability rate, which includes space being marketed for lease, but not yet vacated, reached 6.8%, which suggests that there could be additional occupancy losses as leases expire in the next few quarters. In a bright spot, year-to-date leasing of 16.2 million square feet was the highest level through the first half of a year since 2021. At the midpoint of the year, 33 properties, totaling 4.5 million square feet, were under construction. Notably, only two have been pre-leased, leaving 95% of the space without tenant commitments.
LA County Office Market
LA County Industrial Market
ORANGE COUNTY
The Greater Airport Area was the most active area within the Orange County office market, accounting for 53% of leasing activity during the past quarter. Class A properties, which represent the building with the most amenities and highest quality construction, represented 67% of all new deals signed. The vacancy rate held steady at 19.1% and average asking rates held steady as well by landlords who enhance offerings with greater concessions, such as free rent terms and more substantial tenant improvement allowances.
The industrial vacancy rate rose for the tenth consecutive quarter, increasing by 30 basis points quarter-over-quarter and 160 bps year-over-year to 4.4%. The lower demand led to the seventh consecutive quarter of negative net absorption, with 310,432 square feet vacated. All four major Orange County submarkets recorded occupancy losses; however, select areas showed resilience. Notable gains were reported in Irvine, Fountain Valley and Brea/La Habra. The overall asking rate decreased by $0.04 per square foot to $1.54 per square foot per month on a triple net basis. New construction is limited with 19 buildings totaling 2.4 million square feet underway, only one of which is preleased.
OC Office Market
OC Industrial Market
INLAND EMPIRE
Demand for office space in the Inland Empire improved for the second consecutive quarter as healthcare providers and local small- to mid-sized businesses sought space. However, government is a major employer in the area and limited federal and state budgets could reduce future demand for public-sector office space. The area’s lower asking rate are attractive to office tenants compared with neighboring areas in Los Angeles and Orange counties. All three major submarkets posted gains, a notable shift from recent quarters, as the vacancy rate fell by 60 basis points quarter-over-quarter to 8.3%.
The Inland Empire is primarily an industrial market with about 650 million square feet of warehousing and manufacturing space. It is heavily reliant on port activity, which accelerated early in the year as importers frontloaded shipments to avoid potential U.S. tariffs. Port traffic slowed over the past two months. Direct asking rents averaged $1.19 per square foot per month on a triple net basis, down 2.8% quarter over quarter and 9.5% year over year. Sublease vacancies placed additional downward pressure on pricing, with sublease asking rents averaging $0.86 per square foot, which lowered the overall average down to $1.14 per square foot. New construction totaled 3.4 million square feet, but the pipeline shrunk to 9.1 million square feet under construction across 36 projects, which is the lowest volume in nearly four years.
IE Office Market
IE Industrial Market
SAN DIEGO
San Diego’s office vacancy rate increased to 14.5% following a quarter with significant negative net absorption, according to data from Cushman & Wakefield. The losses were spread across both Class A and Class B properties, down 240,000 square feet and 283,000 square feet, respectively. The losses reflect an ongoing churn among long-term occupiers andamarket still adjusting to new norms. Downtown led the declines with nearly 195,000 square feet of occupancy loss, largely driven by SANDAG’s departure from nearly 100,000 square feet as they relocated to WEST. There were also significant declines in Del Mar Heights and Sorrento Mesa. Trophy buildings are still drawing interest, particularly among firms seeking to incentivize in-office attendance. The largest lease of the quarter was signed by the law firm Wilson Sonsini Goodrich & Rosati, reflecting the legal sector’s active footprint.
San Diego’s industrial vacancy increased to 7.7% as occupancy fell by more than one million square feet, marking the tenth consecutive quarter of occupancy losses, and the largest quarterly decline since Q1 2009. Major vacancies include Panasonic, Whalen Furniture and Northrop Grumman. Rents for research and development spaces increased by 8.2% while manufacturing rents rose by 7.7% year over year. However, rents in warehouse and distribution buildings fell by 4.7%.
SD Office Market
SD Industrial Market
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