Although national data and Voit’s Q2 local market reports indicate that industrial vacancy rates have either increased or held relatively steady entering the summer months, there’s a sense of optimism that vacancy has plateaued and the market is in the midst of a reset. A pronounced slowdown in spec development, more aggressive efforts by landlords to secure tenants, and an uptick in aerospace and defense spending are setting the stage for increased leasing and sales activity.
According to the Yardi Matrix “U.S. Industrial Market Outlook – June 2026” report, the national vacancy rate was 8.8% in May, up 30 basis points over the past 12 months. But in most major metros, vacancy rates have stabilized in recent quarters as the new supply pipeline has cooled and demand has normalized. The changes in Southern California’s vacancy rates vary by individual market. Our researchers reported double-digit increases in the Orange County and Inland Empire markets and a double-digit decrease in the Mid Counties market, with four of the five SoCal markets well below the national vacancy rate.
Even as leasing gains momentum, the conditions that dogged the market in the previous quarter persist. As Brian Mulvaney, CCIM, SIOR, Senior Vice President/Partner, warns in his analysis of the San Diego market, “The industrial market is also being influenced by a broader business climate that remains difficult to predict. Interest rates, inflation concerns, tariffs, fuel costs, and geopolitical uncertainty continue to affect operating decisions.”
Here are some highlights from our Q2 industrial market reports.
San Diego
While San Diego has seen its vacancy rate triple over the last three years to 7.06%, it’s still below the national average of 8.8% and remains largely unchanged from Q2 2025 (6.90%). The availability rate increased by 116 bps from Q2 2025. Sublease space ticked up for the second consecutive quarter, finishing Q2 at 1.9M SF after two quarters of decreases to finish 2025. Average rents remain virtually unchanged year over year at $1.40. In addition to lowering rental rates and increasing concessions, landlords have taken a more aggressive approach over the past six quarters, including upgrading power and, in some cases, lowering requirements on tenant credit strength to fill vacancies. 1.2M SF of new industrial projects were delivered in the first half of 2026, with the 1.1M SF Amazon fulfillment center in Otay Mesa accounting for most of the construction completion total. There is currently 1.2M SF under construction.
In his analysis, Mulvaney notes that while demand is there, tenants are “taking longer to make decisions and are using increased availability to their advantage” as businesses now have more options in the market. He further notes that landlords, especially those with older buildings, limited loading, lower clear heights, and inadequate power, are feeling pressured to offer free rent, tenant improvement dollars, and flexibility in lease structure.
Los Angeles
For the second consecutive quarter, the LA industrial leasing market delivered positive net absorption, driving down the vacancy rate to 5.20%, a slight decrease of 37 bps from Q2 2025. Leasing activity was driven by increased port cargo volumes, which brought third-party logistics providers, food and beverage distributors, and consumer products companies back into the market. Expansion by aerospace and defense companies (like Divergent Technologies, which leased 430,000 SF to begin 3D printing of parts for Tomahawk cruise missiles) generated large-block commitments in space that had been vacant for several quarters. The average NNN asking rate for direct space declined slightly by 6.46% to $1.37 PSF in Q2 2026, but there is a wide gap in taking rates ($1.00 to $1.60) based on submarket location, building vintage, and clear height.
One interesting sidenote that GlobeSt reported is Tesla signed a new 10-year lease nearly 150% above the market’s average effective rent. The 83,740 SF building at 21515 South Western Avenue in the LA South Bay submarket leased at a starting rent of $2.65 PSF and an effective rent of $2.97 PSF. With the development pipeline below 1.8M SF and large-block leasing at its strongest quarterly pace in more than a year, the market is finding its footing, and we predict a sustained, broad-based recovery in 2027.
On the sales transactions side, owner-user acquisitions gained traction, supported by SBA financing availability and improved tax incentives through the One Big Beautiful Bill Act. However, investor buyers are experiencing challenges finding opportunities that meet their underwriting criteria, as there is still a large gap in bid-versus-ask pricing between investor buyers and potential sellers.
Inland Empire
The Inland Empire recorded the highest vacancy rate of the SoCal markets, finishing Q2 at 8.94%, 85 basis points higher than Q2 2025. The availability rate stood at 12.2%. Available sublet space at the end of the quarter was 13.4M SF, substantially lower than the high of 18.4M SF in Q3 2025. The average asking rate in Q2 was $0.98 PSF, down nearly 5% from Q2 2025 and roughly one-third lower than four years ago, continuing a steady multi-year decline. Even with the decline in asking rates, landlords continue to increase concessions to attract tenants. Two market segments recorded positive net absorption in the quarter — buildings between 25,000–50,000 SF and buildings larger than 500,000 SF. All other building size ranges recorded negative net absorption.
Despite the less-than-positive numbers, Juan Gutierrez, SIOR, Executive Vice President/Partner in the Ontario office, remains optimistic about the long-term health of the Inland Empire, which he feels is turning the corner. “In the second quarter leasing velocity picked up and, more importantly, the quality of demand shifted. Corporate America is back at the table. Not just window shopping, they are actively writing letters of intent and taking down blocks of space,” he writes in his market analysis.
That optimism is fueled in part by a slowdown in new development. There were just under 12M SF of deliveries in 2025, approximately 2M SF delivered in the first two quarters of 2026, and 4.6M SF currently in the pipeline. “The constraint of new supply is helping landlords as new construction starts hit their lowest point in recent memory,” says Gutierrez. “Developers have pulled back and fewer cranes in the air today
means less competition for space tomorrow.”
Orange County
Vacancy increased by nearly 100 bps from Q2 2025 to 6.12%, and the availability rate increased to 8.98%. Some of the vacancy can be attributed to the delivery of new product over the past two years, which has been well above the market’s long-term average. The substantial slowdown in new development (435,114 SF currently in the pipeline) should reduce vacancy in the future. The vacancy rate was also impacted by two move-outs during the quarter: 131,544 SF in Brea and 211,200 SF in Fullerton. The average asking lease rate declined slightly year over year, from $1.53 to $1.45.
However, the outlook is optimistic as transaction velocity is increasing and asking rents appear to be leveling off. Defense and aerospace firms in particular have continued to expand their local footprints. “Leasing activity has strengthened as occupiers recognize that today’s market presents an attractive balance of pricing and availability. Rather than waiting for additional rent declines, companies are securing long-term occupancy while quality space remains available,” writes Matt Biggs, Senior Vice President in the Irvine office, in his market analysis. “Looking ahead, the Orange County industrial market appears positioned for a sustainable recovery. Leasing volume is increasing, sale transactions are gaining momentum, and lease rates have largely stabilized.”
Mid Counties
Vacancy has declined for four consecutive quarters, including a 74 bps drop from Q2 2025 to 5.88%. Leasing was driven primarily by third-party logistics, food and beverage, and consumer products. Total availability, however, moved in the opposite direction, increasing over 12% year over year to 10.87%. The average NNN asking rate for direct space declined to $1.29 PSF in Q2, a decrease of 7.9% from $1.40 PSF in Q2 2025, and down roughly 20% from $1.62 PSF in Q2 2024.
On a positive note, the construction pipeline consists of 384,080 SF across three buildings at quarter close, with 185,056 SF already pre-leased to the McMaster-Carr Supply Company. Additionally, there were eleven lease transactions over 100,000 SF in Q2 compared with four transactions in Q1, indicating leasing momentum. Some of that momentum is being driven by an increase in port cargo volumes and the last-mile and regional distribution demand that port activity generates. We predict that vacancy should continue its gradual decline through the second half of 2026, with a stronger recovery forecast for 2027.
For a deeper dive into the individual markets, visit the Voit Market Reports page. To learn more about how we can assist you with your commercial real estate needs, contact one of Voit Real Estate Services’ trusted commercial real estate advisors.