Southern California Industrial Real Estate Remains a Tenant's Market in Q1 2026, Voit Real Estate Services Reports

Voit Real Estate Services released its first-quarter 2026 industrial real estate market reports for Southern California on April 29, finding that tenants continue to hold a commanding position across all five major subregions — the Inland Empire, Los Angeles, San Diego, Mid Counties, and Orange County. Elevated availability rates, declining asking rents, and widespread landlord concessions characterize a market that, according to the firm's brokers, mirrors national industrial trends shaped by macroeconomic headwinds.

Macroeconomic Headwinds Weigh on Industrial Real Estate Conditions

Braden Sprenger, an associate in Voit Real Estate Services' Ontario office who covers the Inland Empire industrial market, framed the broader environment in stark terms. "Notwithstanding the commercial real estate community's eternal optimism, the reality on the ground is more complicated than many would hope," Sprenger said. "The headlines haven't helped: global conflict, persistent inflationary pressure, rising fuel costs, and ongoing uncertainty around trade policy continue to create friction across the supply chain."

The assessment aligns with national data from CoStar Group, which — prior to the U.S.-Iran conflict — projected the U.S. national industrial vacancy rate would rise from 7.5% to 7.8% by year-end 2026 before declining through 2027. CoStar also reported that U.S. industrial asking rent growth has moderated across all lease-size ranges, with properties of 50,000 square feet and above seeing a 2.7% decrease, mid-size properties of 25,000 to 50,000 square feet remaining flat, and smaller spaces registering a slight increase. Juan Arias, national director of industrial analytics at CoStar Group, noted that small-bay tenants have faced significant rent increases in recent years due to limited supply additions, but said rent growth is now moderating as smaller businesses face greater uncertainty.

Across Southern California, all markets tracked by Voit Real Estate Services saw increased availability and continued downward pressure on asking rates in Q1. Although not all SoCal markets showed an increase in vacancy rates in Q1 — Inland Empire, Los Angeles, and Mid Counties registered a slight decrease — there was a year-over-year rate increase in all markets except Mid Counties. On a positive note for landlords, the firm reported a pronounced slowdown in new supply deliveries and construction pipelines across most markets.

Inland Empire and Los Angeles Industrial Markets

The Inland Empire industrial market recorded a vacancy rate of 8.82% in Q1 2026, up 16.45% year over year, while the availability rate rose nearly 10% to 12.31%. Sublease availability remains a significant factor, with 15.6 million square feet of sublet space available at the end of Q1 — compared to just 3 million square feet at the end of Q2 2022. The average asking rate fell to $0.95 per square foot per month, down 7.7% from a year ago, continuing a three-year decline. Construction activity has slowed considerably, with approximately 1.6 million square feet delivered through Q1 2026, well below the pace of the historically low 12 million square feet delivered in all of 2025.

"While new construction starts have slowed, the market is still working through existing inventory, and lease-up timelines remain much longer than historical norms," Sprenger said. "For the market as a whole, the question isn't whether things will improve, it's how long this phase lasts before they do."

The Los Angeles industrial market posted its second consecutive quarter of positive net absorption in Q1, with a vacancy rate of 5.53% — virtually unchanged from Q1 2025. Large-block logistics and freight-forwarding commitments in the South Bay submarket drove most of the occupancy gains. However, an elevated availability rate of 8.07% and active sublease supply kept tenants in a strong negotiating position. Tenant concessions remain abundant, particularly for buildings larger than 50,000 square feet, with tenant improvement allowances ranging from $1 to $3 per square foot, according to Loren Cargile, VP/Partner in Voit Real Estate Services' Los Angeles office.

Cargile also highlighted that the SBA 504 program lending rate has decreased from 6.51% in January 2025 to 5.72%, generating strong owner-user activity at the start of 2026. "The outlook for the remainder of the year is cautiously optimistic, though most industry veterans seem to think a notable recovery likely won't occur until 2027," Cargile said. "For now, tenants control the leasing market while sellers will find they can generally generate strong activity if a building is not priced ambitiously."

San Diego and Mid Counties: Diverging Vacancy, Aligned Concessions

The San Diego industrial market continues to face pressure, with the countywide vacancy rate tripling over the past three years to 7.29% in Q1 2026. The availability rate has followed a similar trajectory, rising to 10.1% after bottoming out at 2.9% in Q2 2022. Asking rents declined slightly to $1.41 per square foot in Q1, remaining roughly flat year over year. Landlords are offering concessions including free rent, introductory promotional rates, power upgrades, and in some instances reduced credit requirements for tenants.

Patrick Connors, SIOR, SVP/Partner at Voit Real Estate Services, identified a notable shift in tenant behavior in San Diego. "The most notable trend in San Diego's industrial market is the growing availability of low-cost sublease space," Connors said. "Many companies are moving away from traditional three-to-seven-year lease structures and opting instead for more flexible, short-term subleases. Ongoing tariff fluctuations — and more recently, rising oil prices driven by the war in Iran — have created significant uncertainty around operating costs. As a result, businesses are prioritizing low-cost, short-term solutions over long-term price certainty."

In the Mid Counties industrial market, the vacancy rate dropped 62 basis points year over year to 5.91% in Q1 2026, marking the second straight quarter of positive absorption. The availability rate remained nearly unchanged from Q1 2025 at 9.59%. Despite the improvement in vacancy, the average asking lease rate declined to $1.30 per square foot — down 10.9% from $1.46 in Q1 2025, the largest year-over-year asking rate decline among all SoCal markets tracked. The development pipeline remained at cycle lows, with no new deliveries in the quarter and limited construction activity. Cargile reported that tenant concessions, including free rent and tenant improvement allowances of $1 to $3 per square foot, remain prevalent, particularly for larger buildings.

Orange County: Manufacturing Demand Leads, Tenants Gain Leverage on Smaller Spaces

Orange County recorded its first quarter of meaningful positive net absorption since early 2023. Despite that gain, vacancy increased by nearly 9% as 712,208 square feet of new construction was delivered to the submarket. The construction pipeline is now at its lowest level since early 2020, and developers are generally requiring prelease commitments before breaking ground. Asking rents continued to decline slightly year over year to $1.47 per square foot.

Jordan Kemper, Senior Associate in Voit Real Estate Services' Irvine office, reported that demand is increasingly driven by manufacturing users — including aerospace, defense, and third-party parts manufacturers — due to a surge in government contract volume. "Large-format buildings 80,000 SF and above continue to see subdued demand, creating opportunities for tenants looking to expand into larger footprints. Buildings under 25,000 SF are absorbing at a faster pace, driven by lease terms more favorable to tenants than at any point in the past several years," Kemper said.

Kemper added that overall leasing and owner-user activity is tracking above the pace of recent years. "Tenants have more options, more leverage, and more time to evaluate decisions. Owner-users are also moving decisively to well-suited buildings as pricing expectations become more aligned with current market conditions," he said.

Outlook: Cautious Optimism, With Recovery Likely Deferred to 2027

Across Southern California's industrial real estate landscape, the Q1 2026 data from Voit Real Estate Services reflects elevated availability, declining asking rents, and broader economic uncertainty — including geopolitical conflict, tariff volatility, and supply chain disruption — shaping conditions favorable to tenants. Landlords are responding with aggressive concessions, including free rent, tenant improvement allowances, and in some cases reduced credit requirements, as they compete for a more selective tenant base. The firm's brokers broadly expect conditions to persist through the remainder of 2026, with a more meaningful recovery anticipated in 2027. Full Q1 2026 industrial market reports for each submarket are available on the Voit Real Estate Services market reports page.