Industrial leasing and sales began to show signs of recovery and resilience in the third quarter of 2025, despite persistent economic uncertainty. Leasing volume nationwide surged to its highest point since early 2024, according to national platforms. Absorption rebounded as well, although the numbers vary widely by market.
According to Commercial Cafe’s October 2025 Industrial Report, the national vacancy rate remains at approximately 8.7%, with average in-place rents for industrial space at $8.72 per square foot (PSF) at the end of September − up 6.1% annually. The national industrial construction pipeline has slowed somewhat but still totals 340.5 million square feet (MSF), with 186.1 MSF of new construction starts in 2025. According to Yardi Matrix, industrial transactions totaled $43.2 billion through August, with properties trading at an average of $137 PSF. Los Angeles (#6, $1.7 billion), Orange County (#11, $943 million), and the Inland Empire (#16, $831 million) are among the top 20 markets in sales volume for 2025.
Southern California
We recently released our Q3 industrial market reports for the Southern California markets we track. While the data shows that vacancy is up year over year (YOY) in all five markets, there are positive signs in some markets and submarkets. Here are some highlights of the individual reports.
Los Angeles
The LA industrial market showed signs of stability during the third quarter after several periods of gradual vacancy increases. Net absorption turned positive (2,122,617 SF) following two quarters of decline. Vacancy and availability rates remained virtually unchanged year over year at 5.41% and 7.90%, respectively. Asking rents declined by 6% YOY to $1.42, as elevated vacancy and tenant expectations continued to push deals below asking levels, with concessions becoming more common in negotiations. Some landlords are also offering several months of free rent on five-year leases to secure tenants. There are currently 2.3 MSF of new product under construction, with an additional 8.5 MSF planned. However, REITs and institutional investors remain cautious on speculative development projects.
On the investment side, high borrowing costs continue to be a constraint. However, the Federal Reserve’s back-to-back rate cuts have begun to improve sentiment, and the additional leasing anticipated in 2026 may support more sales activity ahead. Significant sales transactions include TA Realty’s acquisition of The Concourse, a 420,697 SF industrial business park, from MetLife for $112 million ($266 PSF).
We predict the LA industrial market will hold steady into the first half of 2026. Vacancy and availability will gradually decrease as the constrained development pipeline and ongoing leasing absorb space. Asking rents may continue to soften, but concessions will remain the primary lever rather than sweeping rent cuts.
In his essay on the LA market, Senior Vice President/Partner David Fults provided a historical perspective on the current leasing market. He added that the market appears to be stabilizing. Vacancy in the Los Angeles industrial market peaked at 5.69% in the fourth quarter of 2024 and has been trending downward, albeit slightly—a trend he expects to continue.
San Diego
The San Diego industrial leasing market continues its downward trajectory, with the vacancy rate nearly tripling from 2.53% in Q1 2023 to 7.59% in Q3 2025. Asking rental rates have declined from all-time highs and are down 5.4% YOY. The balance of negotiating power is tilting back towards the tenant, with many landlords taking a more aggressive approach by lowering rental rates and increasing concessions. There were 283,871 SF of negative net absorption in Q3, bringing the 2025 total to a 1.4 MSF decrease in the total industrial-occupier footprint. The market is firmly on track for a third consecutive year of negative net absorption. The last time the San Diego market recorded two consecutive years of negative net absorption was during the global financial crisis (GFC) in 2008 and 2009.
The weak market has not discouraged construction. Nearly 0.5 MSF of new industrial projects were delivered in the first three quarters of 2025, and 2 MSF was under construction at the close of Q3. Most of the recent construction has been speculative, meaning vacancy numbers will likely remain high in 2026. On the investment sales side, transactions are slowing, with the market on pace for its first year with less than $1 billion of sales since 2017.
With the uncertainty created by the tariffs, most investors and tenants will likely remain conservative in the coming months, awaiting clarity on trade policy and the overall economy.
Inland Empire
Following a strong first quarter, the trade war had a negative impact on industrial leasing in the Inland Empire. The vacancy rate has increased by nearly 10% YOY to 8.81%. Asking rental rates have dropped by 15.7%, from $1.21 to $1.02 in Q3 2025. An abundance of sublease space, combined with 9.3 MSF of new deliveries in the first three quarters of 2025, has landlords offering concessions to fuel leasing activity.
Elevated interest rates and the supply/demand imbalance of the past two years continue to slow sales activity. Institutional buyers are taking a cautious stance in light of softening market fundamentals in 2025. The largest sale of Q3 was UPS’s $208 million sale-leaseback of 768,000 SF at 11991 Landon Drive in Jurupa Valley to the Fortress Investment Group, as part of a four-property deal totaling $368 million.
In their market essay, Senior Vice President/Partner Jon Larson and Vice President/Partner Dante Borruso of the Ontario office remain optimistic going forward. The back-to-back rate cuts will provide some incentive. But more importantly, investor confidence in the Inland Empire’s fundamentals, including a deep labor pool, logistics infrastructure, new state-of-the-art buildings, and proximity to ports, will eventually spur a sales rebound.
Orange County
Vacancy in Orange County is up nearly 30% YOY to 5.72%, driven by a combination of tenant consolidations and the delivery of new buildings, some of which were built on spec. Elevated sublease inventory persists, primarily due to companies reducing their footprints as they adapt to changing business needs. Average asking lease rates fell by 8% YOY, to $1.48. The increase in vacant space has been driven primarily by larger, newly delivered properties and tenant moveouts from buildings exceeding 100,000 SF. Smaller buildings under 40,000 SF maintained tighter occupancy levels, sustained by steady demand from local businesses.
We predict Orange County’s industrial market is poised for gradual improvement through year-end and into the first quarter of 2026, with vacancy rates expected to stabilize as new developments seek tenants. Leasing activity should continue to improve, supported by steady user interest, even as businesses take additional time to assess their needs in response to trade policy and macroeconomic signals.
On the sales side, limited inventory, combined with elevated interest rates, discouraged sellers from listing properties, even though high replacement costs established a pricing floor that supported values, despite the softening of lease rates. The average asking sale price remains virtually unchanged from last year at $383.61 PSF and remains one of the highest in the country.
Mid Counties
The Mid Counties industrial market showed meaningful improvement during the third quarter, with the vacancy rate declining nearly 60 basis points to 6.03%. Average asking lease rates fell by almost 13% YOY to $1.35. Elevated availability and competitive conditions pushed completed transactions below asking levels, with concessions remaining common and highly favorable to tenants in negotiations. Trade policy shifts, including the elimination of the de minimis exemption in late August, have necessitated operational adjustments; however, current fundamentals suggest that conditions will continue to stabilize.
Investment activity is beginning to gain traction following the Federal Reserve’s September rate cut. With an additional cut anticipated by the close of the year and another in 2026, the Fed funds rate is projected to reach 3.6% by the close of 2025 and 3.4% by the end of 2026, creating a more positive sentiment among investors. Sales volume is expected to improve as borrowing conditions improve through next year.
We predict the Mid Counties industrial market will hold steady through the remainder of 2025 and into the first half of 2026.
For an in-depth look at the individual markets, visit the Voit Market Reports page.
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