Abstract
OC’s industrial development pipeline remains constrained, reflecting the region’s land scarcity and high barriers to new construction. At the end of Q2 2025, there’s only 1.9M SF of industrial space under construction (UC).
Orange County
ECONOMY
Port of Long Beach saw a 16.9% year-over-year (YOY) decline in imports in June. In contrast, Port of Los Angeles (POLA) saw a 9.7% YOY increase in imports. The import declines in May at both Ports were a direct response to sudden, sharp tariff increases. POLA’s June surge reflects strategic buying during a temporary tariff respite. Despite recent challenges, both Ports have shown positive performance year-to-date (YTD) with a 6.2% combined YOY growth for the first half of 2025. If lasting trade agreements aren’t secured, imports may falter again in Q3–Q4, risking supply-chain instability, retail price pressures, and economic spillovers into transportation and labor markets. National Retail Federation (NRF) projects that U.S. import cargo volume will fall at least 20% YOY in the second half of 2025 as U.S. companies pause orders from China.
Future economic growth, and as a result, demand for logistics space, depends on how companies and consumers respond to increased tariffs. If companies pass through cost related to tariffs, consumers will likely reduce retail spending, thereby reducing company revenues, necessitating employment cuts. Job growth is an important component of the purchasing power necessary for consumers to continue spending, and strong retail sales growth is a key driver for logistics space demand.
As of mid-2025, Orange County (OC) maintains a low unemployment rate of 3.6% and demonstrates strong wage growth across sectors. However, challenges ahead include uncertainty about tariffs, interest rates, housing affordability, and regulatory burdens—factors that weigh on business expansion and new construction.
Consumer spending has a significant influence on the OC industrial market—especially due to its connection with e-commerce, logistics, and distribution. OC is a hub for last-mile delivery—with proximity to affluent populations and coastal access, it's prime ground for ecommerce logistics. U.S. e-commerce is expected to grow by 8.7% in 2025, reaching $1.7 trillion by 2028, accounting for 20% of all retail sales.
VACANCY
Over the past two decades, OC’s vacancy rates have reflected the broader economic tides, showcasing the natural rhythm of supply, demand, and market resilience. Following a surge in 2010 during the Great Recession, vacancy rates began a slow and steady decline and hovered at near 2% from 2016-2022. This period represented a "golden age" for property owners and investors, with consistently high occupancy and strong returns.
Starting in 2023, the subsequent years saw a clear uptick and by Q2 2025 vacancy rate has climbed to 4.8% . However, OC continues to maintain vacancy rates well below the national average and remains a resilient and high-value region amid broader economic headwinds and shifts in market fundamentals.
At the end of Q2, the availability rate climbed 70 bps YOY to 7.3%, with the total amount of available space increasing by 11.9% over the past year. In contrast to this upward trend, sublease space is declining, a sign that tenants are holding firm rather than vacating or reducing space.
OC sublease availability declined to 1.7million square feet (M SF), down 18.6% QOQ and 26.5% lower than a year ago. The drop in sublease availability suggests improving tenant stability and a potential shift in sentiment. While some landlords are facing longer lease-up times amid growing inventory, the reduction in sublease space could indicate that businesses are adjusting to current conditions rather than retreating. This dynamic paints a picture of a market in transition—balancing elevated availability with pockets of underlying strength.
RENT
Rents in the OC industrial market have undergone significant shifts in the past few years. Asking rents saw a steady climb from $0.98 per square foot per month (/SF/MO) in 2019 to a peak of $1.71/SF/MO in 2023—representing a 74.5% increase over four years. This sharp upward trend was driven by tight supply and robust demand in the aftermath of the pandemic.
The market began to show signs of cooling in 2023 and in 2024, when asking rents declined for the first time in years, slipping to $1.52/SF/MO and then further to $1.51/SF/MO in Q2 2025. This coincides with a sharp rise in vacancy rates, which quadrupled from a low of 1.2% in 2022 to 4.8% in mid-2025.
With leasing volumes well below pre-pandemic norms, landlords are increasingly expected to offer competitive concessions to attract and maintain occupancy. The current supply-demand imbalance has swung the negotiating power in favor of the tenants. Rents will continue to moderate until availability tightens and vacancy falls below its long-term historical average.
DEMAND
OC’s industrial market continues to experience turbulence, as evidenced by persistent negative net absorption over the past ten quarters. With negative absorption of 174,294 SF in Q2, the market posted negative net absorption in nine out of ten quarters, with the steepest quarterly decline recorded at 693,606 SF in Q2 2024. At the mid-year point, the market posted 11,038 SF of negative absorption. Although in the red, this is a significant improvement from the 1.1M SF of occupancy loss in the first half of 2024.
YTD leasing activity in OC is up 43.5% YOY, marking a notable resurgence in demand. This strong upswing suggests a rebound in tenant confidence, driven in part by lower rental rates and an increasing need for strategically located, last-mile distribution space. Even with the uptick so far in 2025, leasing activity has continued its multi-year downward trajectory, highlighting a notable market shift from the record-setting years of the pandemic era. With only 3.2M SF leased through Q2, the market may end the year at or below 6.5M SF, far below the recent ten-year historical average.
The slowdown in leasing reflects broader tenant caution, driven by economic uncertainty, elevated costs, and hanging space strategies. Many occupiers are rightsizing or consolidating footprints rather than pursuing aggressive growth. Larger deals are scarce, as limited big-box supply and a conservative expansion mindset weigh on activity. Additionally, the market’s aging inventory and constrained development pipeline are limiting choices for tenants needing modern space. Despite the pullback in leasing, OC’s fundamentals remain relatively resilient compared to national averages, thanks to its central location, strong consumer base, and historically tight supply.
CONSTRUCTION
OC’s industrial development pipeline remains constrained, reflecting the region’s land scarcity and high barriers to new construction. At the end of Q2 2025, there’s only 1.9M SF of industrial space under construction (UC). This is less than 1% of the total inventory, a figure that underscores the limited supply-side pressure in the market.
Following a temporary slowdown from 2019 to 2021, deliveries rebounded significantly in 2022, which marked the most active development year on record, with over 2.3M SF of new supply entering the market. YTD completions of 1.3M SF is up 19.5% YOY. As new supply continues to deliver, tenant demand and absorption will need to keep pace to prevent further upward pressure on vacancy rates.
Future development could face mounting challenges due to land constraints, rising construction costs, and slower preleasing activity. Land prices in OC are among the highest in the nation, making industrial projects less financially feasible. Looking ahead, the scarcity of new deliveries—combined with ongoing tenant interest in well-located, functional space—could put upward pressure on rents for modern facilities.
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