Vacancy & Rent Trends: Where Southern California Stands

While vacancy rates climbed and new warehouses sat empty across Southern California industrial real estate in late 2024, early 2025 hints at a potential market rebound. Rising import volumes at the Ports of LA and Long Beach, coupled with a noticeable uptick in leasing activity, suggest improved market fundamentals may be taking hold. Although challenges like elevated warehouse vacancy rates and declining asking rents persist, experts point to stabilization in core markets. Adding complexity, looming state regulations (AB 98) effective in 2026 threaten future warehouse development, potentially boosting long-term property values even as the impact of global tariffs remains uncertain.

Market Softness Meets Green Shoots: Leasing Activity Picks Up

The vast Southern California industrial market ended 2024 feeling the chill. Asking rents dipped below pandemic peaks, vacancies trended upwards, and newly built warehouses often opened their doors to silence. Yet, a shift seems underway in early 2025. “Despite a continued slowdown in leasing, we are seeing some improvement in activity in core industrial markets… which shows stronger signs of stabilization overall,” observes Jeff Chiate, executive vice chair of industrial capital markets at Cushman & Wakefield. This cautious optimism stems from busier ports and increased tenant interest, suggesting the region’s powerhouse logistics hubs might be turning a corner.

Vacancy & Rent Trends: Where Southern California Stands

The picture varies across the Southland’s key industrial corridors:

Los Angeles County: Vacancy closed 2024 at 4.9%, but the availability rate (including space being marketed before tenants leave) hit 6.4% – up significantly from 4.8% a year prior. Asking rents have fallen for five straight quarters, yet remain a striking 54% above pre-pandemic levels.

Orange County: Vacancy rose for the eighth consecutive quarter to 3.9%, with annual net absorption turning negative for the first time since 2014 (-3.2 million sq ft).

Inland Empire: The region saw the sharpest vacancy jump, up 3.2% year-over-year to 8.0%. Notably, sublease space (tenants trying to offload excess capacity) made up 22% of available space.

San Diego: Vacancy reached 6.5% at year-end, its highest point since 2014.

Inland Empire Development Slows as Vacancy Rises

The Inland Empire (IE), long the engine of new warehouse construction thanks to available land and key transportation links, added a massive 22.8 million sq ft in 2024 (vs. 6.5M in LA and 1.3M in OC). However, much of this space delivered vacant, contributing to the rising vacancy rate. The development pipeline is now shrinking dramatically. Only 12.6 million sq ft was under construction in the IE at the start of 2025 – the lowest level since 2014. San Diego’s development is concentrated in Otay Mesa near the border, highlighted by a massive 1.1M sq ft Amazon warehouse.

AB 98’s Shadow: How 2026 Regulations Could Reshape Supply

A major cloud – and potential long-term catalyst – looms on the horizon: California Assembly Bill 98 (AB 98). Set to take effect January 1, 2026, this legislation imposes strict new regulations on the development and operation of warehouses 250,000 sq ft or larger. Experts warn this will likely “drastically reduce new construction” in the future. “With Southern California’s industrial construction pipeline slowing dramatically, there will be limited new options in 18-24 months,” emphasizes Chiate. This impending regulatory squeeze adds a critical layer to the 2025 market outlook.

Investor Outlook: Pricing Adjustments Signal Future Opportunity

The market correction has reset investor expectations. Pricing for industrial properties has fallen 30-40% from the dizzying peaks of recent years. However, this adjustment, combined with the dramatic slowdown in new development and the looming constraints of AB 98, lays the groundwork for potential future strength. Scarcity of new, modern space driven by regulatory hurdles could significantly boost the value of existing, well-located assets in the coming years.

Conclusion: A Rebound Rooted in Scarcity

Early 2025 offers tentative signs of life for Southern California industrial real estate, driven by port activity and stabilizing core markets. While elevated vacancy rates and softer rents reflect recent cooling, the dramatic slowdown in warehouse construction – soon to be compounded by AB 98 regulations – points toward a fundamental shift. Investor pricing has recalibrated, and the stage is set where limited future supply could transform today’s market softness into tomorrow’s competitive advantage. The path to a sustained 2025 rebound hinges on absorbing current vacancy, but the long-term outlook suggests resilience and value growth driven by constrained development.

Long-Term Solutions? Foreign Trade Zones Offer Alternatives

midst unprecedented tariff turmoil at the Ports of Los Angeles and Long Beach, a specific type of industrial real estate is experiencing explosive demand: bonded warehouses. As steep tariffs – including a staggering 145% on Chinese goods and 10% on most global imports – slam LA ports and freeze broader industrial leasing, importers are in a frantic scramble. These businesses are desperately seeking space within customs bonded facilities, the only warehouses where goods can be stored without immediate tariff payment, buying crucial time as they hope for a resolution to the trade conflict.

What Are Bonded Warehouses & Why the Rush?

While most imported goods face tariff charges the moment they hit US soil, bonded warehouses offer a critical lifeline. Operated under strict U.S. Customs and Border Protection (CBP) oversight – requiring background checks and bonds starting around $100,000 – they allow importers to store goods duty-free until removal. “There’s been an absolutely crazy increase in demand for bonded space,” reports Danny Reaume, an industrial property broker at JLL. “Everybody wants to bring their goods here in advance of what they hope is a resolution” to the tariff war. Essentially, importers are using these LA-area facilities as a pressure valve against crippling immediate costs.

The High Cost of Tariffs: 145% on China, 10% Globally

The trigger for this scramble is the sheer weight of the new tariffs. A 145% levy on Chinese imports and a near-universal 10% tariff are expected to drastically slash cargo volumes through the nation’s busiest port complex (LA/Long Beach) in the coming weeks. For businesses reliant on global supply chains, paying these fees upfront is often financially impossible.

Scarcity in Crisis: LA’s Bonded Space Squeeze

The surge in demand hits a major bottleneck: extreme scarcity. Reaume emphasizes that only a “tiny fraction” of Southern California’s massive 2 billion square feet of industrial space is CBP-bonded. Traditionally used for trans-shipment or light assembly between countries, these specialized facilities are now overwhelmed. Warehouse operators wanting to convert space face a months-long approval process involving stringent security and infrastructure checks, meaning new supply won’t arrive quickly enough to meet this crisis demand.

Beyond Storage: Strategic Play to Dodge Tariff Pain

Importers aren’t just stashing goods blindly. Their strategy is nuanced:

1. Short-Term Hope: Store goods for 30-60 days, betting the trade conflict eases and tariffs drop before they need to move inventory.

2. Controlled Release: If tensions persist, gradually withdraw goods piecemeal, paying tariffs incrementally rather than in one massive, budget-breaking hit.

3. Relationship Protection: Some suppliers are absorbing tariffs to maintain vital relationships with major retailers, avoiding cancelled orders or price hikes that could damage hard-won partnerships. “Suppliers are eating a lot of these tariffs,” Reaume confirms, hoping for eventual relief.

The key attraction? Duties can be deferred for up to five years and are paid based on the tariff rate in effect when goods leave the warehouse – a potential massive saving if rates fall. As logistics firm Geodis stated, these tariffs are “significantly reshaping import costs and supply chain strategies,” forcing businesses into complex “cost management and cash flow optimization.”

Long-Term Solutions? Foreign Trade Zones Offer Alternatives

Another option for delaying tariffs is using Foreign Trade Zones (FTZs). While allowing indefinite storage, Geodis notes a crucial difference: tariffs in FTZs are typically locked in at the rate when goods enter the zone, unlike bonded warehouses where the exit rate applies. However, the overall outlook for LA’s industrial real estate market is clouded. Port officials predict cargo arrivals could plummet by 35%, and broader warehouse leasing has stalled as businesses adopt a “wait-and-see” approach, hoping for negotiated tariff reductions before committing to new space. The tariff turmoil is undeniably reshaping the landscape of global trade flowing through Southern California.

Conclusion: A Strategic Lifeline in Uncertain Times

The surge in demand for bonded warehouses in Los Angeles underscores a critical adaptation strategy within the global supply chain amid intense tariff turmoil. As importers grapple with crippling 145% duties on Chinese goods and widespread 10% tariffs, these CBP-approved facilities offer a vital, albeit scarce, solution: deferring customs duties and buying precious time. While this tariff strategy provides temporary relief and protects crucial retailer relationships, the extreme scarcity of bonded industrial space in the LA port region highlights the market’s fragility. Whether this is a short-term scramble or a longer-term shift depends heavily on the resolution of the trade conflict. One thing is clear: in the high-stakes chess game of international trade logistics, bonded warehouses have become a crucial, strategic necessity for businesses navigating the turbulent waters of current US tariff policy. The resilience of Southern California’s industrial real estate market now hinges on how quickly trade tensions ease.