As 2025 winds down, the Southern California industrial landscape feels a bit like it finally found its footing after two years of recalibration. For owners, tenants, and investors, the year was defined by normalization: vacancy levels settled into healthier territory, tenant demand returned in select pockets, and sales activity, while quieter than the peak years, showed renewed momentum heading into Q4.
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:
- 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.
- 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.
- 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.
- 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.
