Abstract
In 2025, overall leasing remained relatively healthy and totaled 5.9M SF, 13.5% higher than 2024 levels. However, the market still ended the year in the red. Even as leasing remained robust, the influx of new space compounded the impact of tenant downsizing and sublease availability, keeping net absorption negative.
Orange County
ECONOMY
Orange County (OC) remains one of Southern California’s most dynamic economies, although economic momentum has moderated in recent quarters. Known for its diverse employment base and affluent population, the region continues to benefit from long-term structural strengths but faces some near-term headwinds. Employment growth has moderated with nonfarm employment increasing by just 5,300 jobs YOY in November, or 0.3%. Consumer spending remains resilient but overall growth is stable, not accelerating.
One of the major drivers of demand for OC industrial is its proximity to the Ports of Los Angeles and Long Beach. These two gateways together handle a massive share of U.S. containerized trade , making Southern California a critical entry point for imported consumer goods. Even with some recent moderation in volumes and tariff induced volatility, both Ports have continued to process high import volumes.
After a 12.5% year-over-year (YOY) decline in October, combined import volume at the Ports fell another 9.4% YOY in November. Even so, cumulative volume through November remains up 0.7% YOY, highlighting relative stability beneath recent softness.
E-commerce remains a core structural driver of industrial demand, with online sales continuing to take share of total retail and fueling ongoing need for warehouse and fulfillment space near population centers. In OC, this supports demand for smaller, infill distribution and last-mile facilities serving local and regional consumers. Steady retail spending and employment growth provide a durable demand foundation, even as e-commerce growth normalizes and short-term vacancy pressures persist.
VACANCY
After peaking at 7.6% in 2003 and again at 6.7% in 2010, vacancy steadily declined through the 2010s, reaching a record-low of 1.2% in 2022. However, the ultra-tight environment began to unwind in 2023.
On a quarterly basis, vacancy rose methodically from 1.6% in Q1 2023 to 2.5% by year-end, signaling the early stages of normalization as leasing slowed and tenants became more cautious. The upward trend continued through 2024, with vacancy increasing each quarter and crossing its long-term average in Q4 2024 at 4.2%.
In 2025, vacancy moved decisively above historical norms, climbing from 4.5% in Q1 to 5.9% by Q4. The steady quarter-to-quarter increases point to a measured adjustment rather than a shock, driven by softer demand, space givebacks, and elevated sublease availability following the pandemic-era expansion.
While the market has clearly shifted to a more tenant-friendly phase, current vacancy levels remain consistent with prior mid-cycle slowdowns and do not suggest structural oversupply.
Vacancy and availability vary meaningfully by submarket, highlighting an uneven recovery across Orange County. North County and West County are tracking near the countywide vacancy rate of 5.9%, though West County shows elevated availability as more space is being actively marketed. The Greater Airport Area remains comparatively tight, with below-average vacancy and availability reflecting its infill location and diverse tenant base. South County stands out as the softest submarket, posting the highest vacancy and availability rates.
Orange County’s sublease availability fluctuated throughout 2025, ultimately finishing the year at 2.1 million square feet (M SF), slightly above year-end 2024 levels (+2.3% YOY). Despite this annual increase, short-term trends show easing conditions with a 13.0% quarterly decline and a 14.4% month-over-month (MOM) drop, indicating recent absorption or withdrawals from the market.
RENT
OC’s industrial rents closely tracked vacancy trends over the past cycle. From 2018 through 2022, asking rents rose sharply—from $0.92 to $1.61 per square foot per month (/SF/MO)—driven by exceptionally tight vacancy that hovered near or below 2.0%. Peak pricing emerged in 2023 even as vacancy began to rise, with asking rents reaching $1.71/SF/MO despite early signs of softening demand.
As vacancy continues to trend up through 2024 and 2025, rent momentum reversed, declining by 11.1% YOY in 2024. By year-end 2025, asking rents had retreated to $1.44/SF/MO, down 5.3% YOY, reflecting increased tenant leverage, slower leasing velocity, and greater competition among landlords.
While rents have reset from peak levels, they remain well above pre-pandemic norms, underscoring the market’s long-term pricing power. The current environment reflects normalization rather than a collapse, with rent softening tied directly to rising vacancy and availability rather than structural weakness.
DEMAND
Net absorption in OC’s industrial market has been volatile over the past three years, reflecting a mix of tenant downsizing, space givebacks, and uneven leasing activity. In 2023 and 2024, the market experienced persistent negative absorption, with notable quarterly losses such as –599,78SF in Q2 2023 and –681,48SF in Q4 2024, signaling broad tenant caution and slower demand.
The first quarter of 2025 offered a rare positive blip, with 163,256SF absorbed, suggesting some short-term leasing activity and stabilization in certain submarkets. However, negative absorption quickly returned in the following quarters, highlighting ongoing volatility and the continued impact of elevated vacancy and availability.
In 2025, overall leasing remained relatively healthy and totaled 5.9M SF, 13.5% higher than 2024 levels. However, the market still ended the year in the red. Even as leasing remained robust, the influx of new space compounded the impact of tenant downsizing and sublease availability, keeping net absorption negative.
The disconnect between leasing and absorption highlights a tenant-favored market dynamic. Tenants are actively negotiating new or replacement space, but the cumulative effect of space givebacks, sublease availability, and cautious expansion kept overall absorption negative for the third year in a row.
CONSTRUCTION
The combination of ongoing construction and substantial deliveries contributed directly to the countywide vacancy increase—from 1.6% in Q1 2023 to 5.9% by Q4 2025—even as leasing activity remained relatively healthy. The steady stream of new product delivering to the market just as existing space availability is growing is intensifying competition and expanding tenant options.
While the market continues to digest a wave of new deliveries—2.3M SF for 2025—future development is likely to face growing challenges. Rising construction costs, higher interest rates, limited pre-leasing activity, and elevated land prices—among the highest in the nation—are making ground-up industrial projects increasingly difficult to pencil. These factors, combined with significant state-level regulations affecting industrial development and scarce entitled land, are expected to curb future supply growth.
The active pipeline highlights that construction will continue to shape market dynamics. While new product addresses long-term demand from logistics and e-commerce growth, the near-term effect is upward pressure on vacancy. While the market is currently rebalancing, the limited long-term development capacity may help stabilize fundamentals once the current wave of new supply is absorbed.
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