By J.C. Casillas
Managing Director of Research and Public Relations at NAI Capital Commercial

Southern California’s industrial market was mixed in the third quarter. Total available space rose 1.7% quarter-over-quarter to 187.9 million square feet, lifting the regional availability rate 20 basis points to 9.8%. Vacancy improved 20 basis points to 7.2%, flat from a year ago. Pricing showed signs of stabilization, with the average sale price rising 16.8% quarter-over-quarter to $276 per square foot, within 1.5% of a year ago, while the average asking rent ticked up 1.0% to $1.23/SF NNN. Investors remained active, with quarterly sales volume of 9.7 million square feet, up 39.0% from a year ago. The recovery remains uneven, with leasing slowing, the construction pipeline growing, and higher interest rates continuing to add uncertainty heading into year-end.

Economic Conditions

The economy remains relatively resilient, supporting tenant demand while putting pressure on capital markets. Economic growth has held up better than expected, with investment supported in part by continued spending on AI infrastructure. Inflation remains elevated, while energy costs and tariffs continue to add pressure. The Federal Reserve has resumed adjusting interest rates, and long-term Treasury yields remain elevated by historical standards. For industrial real estate, occupier fundamentals are holding up, but higher financing costs and required returns continue to complicate investment decisions.

Supply & Development Pipeline

The pipeline’s decline paused this quarter. Industrial space under construction across Southern California totaled 18.7 million square feet, up 11.1% quarter-over-quarter and 6.5% year-over-year. Quarterly deliveries rose 68.6% from the prior quarter to 2.7 million square feet but remained 66.4% below a year ago, while year-to-date completions of 7.1 million square feet are down 59.1%. Construction is rising in the Inland Empire and Los Angeles County while falling sharply in Orange County, where the pipeline is down 76.6% year-over-year. Sublease availability rose 4.4% quarter-over-quarter to 29.4 million square feet but remains 10.3% below a year ago.

Demand, Leasing & Transaction Volume
Leasing activity totaled 23.2 million square feet, down 40.4% quarter-over-quarter and 34.4% year-over-year. Year-to-date leasing of 93.9 million square feet is essentially flat, down 0.3% from last year’s pace, suggesting the sharp quarterly decline may reflect a seasonal and uncertainty-driven pause rather than a broad deterioration in demand.

Sales volume was 9.7 million square feet, down 33.0% from a strong second quarter but up 39.0% from a year ago. Year-to-date sales of 31.1 million square feet are up 32.7%. Dollar volume of $2.0 billion is up 12.6% year-over-year, while year-to-date dollar volume of $7.1 billion is up 12.9%. Investors are continuing to transact, but higher borrowing costs remain a constraint on the pace of recovery. The difference between growth in square footage and dollar volume also points to continued price discovery and a changing mix of transactions.

Pricing & Rents

The regional average asking rent was $1.23/SF NNN, up 1.0% quarter-over-quarter but down 0.8% year-over-year. Orange County held the highest rents at $1.45/SF, followed by Los Angeles County at $1.37/SF, while the Inland Empire had the lowest average asking rent at $0.97/SF. The average sale price of $276/SF is 1.5% below a year ago, while the median rose to $318/SF, up 19.6% year-over-year. With the 10-year Treasury at 5.26%, higher risk-free yields continue to put pressure on property valuations and required returns.

Inland Empire

Market Dynamics: The Inland Empire remains the region’s largest source of available space, at 97.2 million square feet, with an availability rate of 12.8%, up 40 basis points from Q2 and 60 basis points from a year ago. Vacancy improved to 8.7%, down 10 basis points quarter-over-quarter and 30 basis points year-over-year, making the Inland Empire the only market with vacancy improving both quarter-over-quarter and year-over-year.

Activity: Leasing volume fell to 10.3 million square feet, down 49.3% from Q2 and 44.5% from a year ago. Year-to-date leasing of 46.5 million square feet remains the highest in the region and is only 3.1% below last year’s pace, so the quarterly decline looks more like a pause than a trend break. Quarterly sales volume of 2.7 million square feet fell 64.6% from Q2, the sharpest decline of any market, but was up 29.5% year-over-year. Year-to-date sales of 12.4 million square feet are up 121.9%, indicating that buying activity was concentrated in the first half of the year. The average sale price of $216/SF is 13.3% below a year ago, while rents of $0.97/SF are down 4.0%.

Trends to Watch:

• Supply pressure remains the main concern. Space under construction is up 14.4% quarter-over-quarter and 25.4% year-over-year to 14.0 million square feet, the largest pipeline in the region by a wide margin.
• Sublease availability rose 13.3% from Q2 to 17.0 million square feet.
• The average sale price rebounded 14.5% from Q2 but remains well below last year, reflecting continued pressure on pricing.

Los Angeles County

Market Dynamics: Vacancy improved 30 basis points from Q2 to 6.4% but remains 10 basis points above a year ago. Availability is 7.9%, within 10 basis points of Q2 and flat from Q2 2025, with available space totaling 70.5 million square feet.

Activity: Leasing volume was 10.1 million square feet, down 32.6% from Q2 and 27.7% from a year ago, although year-to-date leasing of 37.4 million square feet is up 2.4%. Los Angeles County led the region in sales activity. Quarterly volume rose 23.1% from Q2 and 62.8% from a year ago to 6.1 million square feet, while year-to-date volume of 15.1 million square feet is the highest in the region. Rents slipped 0.7% from Q2 to $1.37/SF.

Trends to Watch:

• Pricing remains under pressure. The average sale price fell 14.4% from Q2 and 10.3% from a year ago to $240/SF, while the median is down 13.4% year-over-year to $237/SF.
• Year-to-date square footage is up 6.7% while year-to-date dollar volume is essentially flat, down 0.3%, pointing to continued price discovery and a changing mix of transactions.
• The pipeline is up 9.8% from Q2 to 3.3 million square feet, making new supply worth tracking.

Orange County

Market Dynamics: Orange County had the largest improvement in availability in the region. Availability fell 50 basis points from Q2 and 60 basis points from a year ago to 7.5%. Vacancy improved 30 basis points from Q2 to 6.2% but remains 20 basis points above a year ago, a notable shift for one of the region’s most supply-constrained markets.

Activity: Leasing volume was 2.6 million square feet, down 20.5% from Q2 but up 2.0% year-over-year, while year-to-date leasing of 9.2 million square feet is up 4.4%, the strongest growth among the four markets. Rents slipped 1.4% from Q2 to $1.45/SF but remain the highest in the region.

Trends to Watch:

• Investment activity is lagging. Quarterly sales volume of 748,000 square feet is down 53.9% from Q2 and 20.8% from a year ago. Year-to-date volume of 3.1 million square feet is down 3.9%, the only decline among the large markets, while year-to-date dollar volume is down 13.6% to $950 million. Availability improved despite weaker investment activity, while leasing remained relatively resilient.
• The average sale price rebounded 22.2% from Q2 to $336/SF but remains 8.4% below a year ago.
• The pipeline has shrunk 76.6% year-over-year to 544,000 square feet, limiting new supply and potentially supporting further improvement in vacancy. Pricing figures reflect a limited number of trades, while higher interest rates point to a more cautious capital markets environment for investors.

Ventura County

Market Dynamics: Ventura remains the tight outlier, with vacancy of 3.1%, well below the regional average of 7.2%. Vacancy has risen 30 basis points from Q2 and 20 basis points from a year ago. Availability rose 80 basis points from Q2 and 100 basis points from a year ago to 6.6%, led by a 15.0% increase in direct availability.

Activity: Leasing volume fell 41.5% from Q2 to 191,000 square feet, while year-to-date leasing of 910,000 square feet is down 6.6%. There were no deliveries in the quarter. Rents rose 7.5% from both Q2 and a year ago to $1.14/SF, the only market with rising rents. Quarterly sales volume fell 41.7% from Q2 and 30.8% from a year ago to 122,000 square feet, although year-to-date volume is up 10.9%.

Trends to Watch:

• Availability is climbing faster than anywhere else in the region while leasing slows, increasing the amount of space that needs to be absorbed.
• Rents are rising even as demand softens, a trend that may become more difficult to sustain if availability continues to build.
• Sale price metrics, up 55.2% quarter-over-quarter and 31.6% year-over-year, are based on a limited number of transactions and should not be interpreted as a broad pricing trend.

Market Outlook

Southern California industrial is stabilizing, but the recovery remains choppy. Vacancy is holding near 7%, deliveries remain well below last year, sales volume is running ahead of 2025, and sale prices and rents have largely stopped falling. At the same time, availability rose this quarter, the construction pipeline grew, and leasing slowed, particularly in the Inland Empire, where supply pressure is most acute.

Economic conditions add another layer of uncertainty. Higher long-term yields are increasing financing costs and required returns, which could limit further price gains even as occupier fundamentals remain relatively stable. The Fed’s signal that there is “no need for urgency” on further hikes could provide some stability for capital markets, but long-term yields remain elevated.

Owners with vacant space, particularly in the Inland Empire, may continue to face pressure to offer competitive concessions, while well-capitalized buyers and owner-users may find opportunities where pricing remains below prior peaks. A more balanced market will depend on leasing activity improving in the fourth quarter and new construction starts remaining disciplined.