At Johnston Pacific, much of our time this year was spent helping clients navigate that middle ground: neither the overheated frenzy of 2021–22 nor the cautious pause of early 2024. Below is our wrap-up of how leasing and sales performed, what drove the changes, and how to position yourself heading into 2026, whether you’re exploring your first industrial purchase or adding to an established portfolio.

How the Market Performed in 2025

Leasing: Momentum Returned in Measured Steps

Leasing regained its pace through mid-2025, especially in larger format and modern buildings where tenants made long-delayed decisions. The Inland Empire and select infill pockets in Orange County and Greater LA absorbed fresh space as companies expanded or consolidated into higher-functioning facilities. Demand wasn’t uniform, but it was steady enough to absorb a meaningful share of the new supply delivered this cycle.

Sales: A Quiet First Half, Then Activity Picked Up

Higher financing costs kept many investors on the sidelines early in the year. As 2025 progressed, and pricing expectations adjusted, transaction volume began to rise again. We saw more private buyers, owner-users, and exchange-driven investors re-enter the market by Q3, especially for well-located coastal or infill properties where long-term scarcity still drives value.

Vacancy & Rents: A Stabilizing Plateau

New construction from the previous cycle pushed vacancy higher in late 2023 and 2024. By 2025, much of that pressure leveled off as supply slowed and tenants absorbed newly built space. Rents, which had previously grown at historic rates, settled into a more sustainable pattern, still healthy, but aligned with a mature market.

What Shaped 2025 Behind the Scenes

A few forces influenced what we saw this year:

• Interest rates held many investors back, moderating cap rates and extending time-on-market for listings.
• Deliveries from the construction pipeline filled the calendar, raising availability before tapering off toward year-end.
• Tenant preferences shifted toward functionality, with companies prioritizing loading efficiency, clear height, EV readiness, and reliable power.
• Submarkets became more differentiated, with the Inland Empire absorbing larger spaces and coastal submarkets trading on scarcity and specialized uses.

Looking Ahead: Johnston Pacific’s Outlook for 2026

While no cycle repeats exactly, 2026 appears poised for a more active, opportunity-driven market:

1. Leasing Should Continue Strengthening

As new supply slows and occupiers grow more confident, expect healthier absorption, particularly for buildings offering modern infrastructure or strategic infill access.

2. Sales Activity May Improve if Financing Eases

If rate pressure softens, sidelined buyers will likely return quickly. Even without major rate changes, we expect more realistic bid-ask spreads to support stronger deal flow.

3. Modernization Will Create Winners

Buildings with functional advantages, clear height, yard space, sustainability features, power capacity, will outperform. Older stock that doesn’t upgrade will lag.

4. Investors Will Prioritize Flexibility and Risk Management

Conservative underwriting, capex planning, and diversified tenant mixes will be key themes as owners aim for resilience rather than purely aggressive growth.

Guidance for Investors: Getting Started or Scaling Up

If You’re Exploring Your First Industrial Investment

Start with a clear objective.
Is your focus income stability, long-term appreciation, or a value-add play? Your path looks different depending on the answer.

Learn your submarket deeply.
Southern California changes block by block. Understanding truck routes, use restrictions, and tenant profiles is worth its weight in gold.

Consider teaming with an experienced operator.
Leasing, management, and due diligence all carry nuance, especially in coastal markets where regulations can be intricate.

Favor functionality over charm.
Industrial tenants care about efficiency. Dock-high loading, modern power, and parking ratios will matter more than cosmetic updates.

If You’re Expanding an Established Portfolio

Target differentiation, not just expansion.
Infill last-mile, cold storage, and flexible small-bay product will remain the most resilient performers.

Mind your debt stack.
2026 could bring refinances, and planning ahead provides more negotiating power.

Evaluate older buildings as repositioning plays.
Obsolete space can become a profitable project with the right capex plan, solar, upgraded loading, mezzanines, or EV-ready infrastructure.

Leverage exchanges and creative structures.
1031s, sale-leasebacks, or strategic partnerships can help you scale without overextending capital.

A Quick Due Diligence Snapshot

Whenever you’re eyeing a property, make sure you check:

• zoning and use restrictions
• loading configuration and truck maneuverability
• power availability
• roof, slab, and parking condition
• tenant rollover timing and escalation schedules
• nearby supply under construction
• environmental history (Phase I/II if needed)

Final Thoughts from Johnston Pacific

2025 reminded Southern California investors that industrial real estate isn’t a sprint, it’s a cycle-driven business where patience, timing, and asset quality outweigh hype. As we enter 2026, we see a market full of selective but very real opportunities for those who move strategically.

If you’re a business owner currently leasing space, 2025 could be the year to explore ownership. Here’s why our clients are making the switch:

1. Equity Over Expense

Every month you lease space is a month spent building someone else’s wealth. Ownership turns those same payments into equity that builds your future. Several Johnston Pacific clients who purchased in the last 24 months have already seen significant appreciation, some with equity gains that outpace their original down payments.

2. Proven Financing Strategies That Work

SBA 504 and 7(a) loans, which offer low down payments, long-term fixed rates, and financing options that include buildout costs. Whether you’re a startup or a second-generation company, Johnston Pacific has relationships with lenders that understand how to structure deals for owner-users in South OC.

3. Tax Advantages That Pay Dividends

Ownership brings powerful tax benefits. Talk to your CPA to ensure you’re taking full advantage of mortgage interest deductions, property depreciation, and potential capital gains deferrals. In many cases, these benefits make ownership a better financial decision, even when monthly costs are similar to leasing.

4. Control Your Space. Control Your Future.

As commercial real estate advisors, we’ve seen too many businesses disrupted by unpredictable lease renewals or restrictions on how they can use their space. When you own your building, you gain total control over how you use and improve your property. Whether you need upgraded power, high ceilings, additional parking, or a customized office layout, you call the shots.

5. Scarcity = Stability

South Orange County is a land-constrained market with very limited industrial inventory under 20,000 SF. Ownership not only locks in your location, but it also gives you an asset in one of the most sought-after markets in the region. Buildings we sold just a few years ago are now commanding top dollar or producing strong lease income for their owners.

Real Results from Johnston Pacific Clients

In Q2 alone, Johnston Pacific represented several business owners who made the leap from leasing to owning and they’re already seeing the benefits. One client opened escrow on a freestanding warehouse in less than 10 days!

Is Now the Time for You to Buy?

Every business is different, and that’s why we take a consultative, no-pressure approach to evaluating whether buying makes sense. At Johnston Pacific, we’ve helped business owners in manufacturing, distribution, creative services, biotech, and more find the right properties, secure financing, and build equity through ownership.

Let’s talk about what’s possible.
Call Johnston Pacific at 949-366-2020 for a confidential consultation and let’s see if buying your next space could be your best business decision in 2025.