Q2 2025 Los Angeles Industrial Market Report
Key Findings
- After a brief positive net absorption in Q1, the market reversed in Q2 with a net loss of 166,875 SF, pushing the overall vacancy rate to 6.2%. Port-related submarkets like Vernon, Commerce, and City of Industry were hit hardest as logistics tenants continued downsizing.
- Asking rents declined nearly 20% from their 2023 peak, with effective rents falling up to 30% due to widespread concessions such as 4–5 months of free rent on five-year leases. Q2 marked a -5.0% annual rent growth, the lowest in recent years.
- While leasing volume surged to nearly 12 million SF in Q1 and remained strong in Q2, new listings outpaced demand, and over 5.7 million SF was vacated over the trailing year—driven by retailer bankruptcies, logistics downsizing, and manufacturing shutdowns.
By the Numbers
- Sales Volume: $1.1B
- Average Market Sale Price Per SF: $307
- Cap Rate: 5.3%
- Vacancy Rate: 6.2%
- Rent Growth: (4.9%)
- Average Market Asking Rent Per SF: $17.70
- SF Under Construction: 6.1M
- SF Delivered: 961K
- SF Absorbed: (2.5M) | Q2 2025 | Source: CoStar Group, Inc.
Los Angeles Demographics
- Unemployment Rate: 5.7%
- Current Population: 9,774,379
- Households: 3,499,365
- Median Household Income: $92,424
Los Angeles remains a demographically diverse and economically significant metro, though it faced mounting structural challenges. As the second-largest metro in the U.S., L.A. boasts strong sectors in entertainment, aerospace, tourism, and trade, supported by a rich talent pipeline from institutions like USC, UCLA, and Caltech. However, its population has shrunk by over 3% in five years—more than 300,000 residents—due to high living costs, labor unrest, and migration to more affordable SunBelt markets.
The region’s affordability crisis, with median home prices exceeding $1 million, continues to strain its labor force. Although tech and media employment showed modest improvement in Q2, it’s still down roughly 25% from 2022 levels, and the entertainment sector remains slow to rebound. Additionally, the January 2025 wildfires—one of the costliest disasters in U.S. history—cast a long shadow on the local economy, with an estimated $28–$54 billion in property losses, and further stress expected from reduced labor income and disrupted business activity.
Market Performance
In Q2 2025, the Los Angeles industrial market continued to struggle with rising vacancy and weakened fundamentals. Despite strong tenant activity and leasing volumes nearing pre-pandemic highs, net absorption turned negative again following a brief recovery in Q1, with over 166,000 SF vacated. The vacancy rate rose to 6.2%, driven largely by continued downsizing from logistics tenants, bankruptcies among brick-and-mortar retailers, and a wave of speculative deliveries hitting the market without tenants in place. Asking rents declined sharply, with year-over-year rent growth falling to -5.0% and landlords increasingly offering generous concessions —up to five months of free rent on longer-term deals. Although construction remained moderate at 6.1 million SF, nearly 80% of that pipeline was unleased, further contributing to upward pressure on availability. Overall, Q2 reflected an unstable recovery, with elevated risks from trade policy, high borrowing costs, and ongoing tenant churn dampening prospects for short-term stabilization.
Performance By Industrial Type
Source: CoStar Group, Inc.
| Vacancy Rate | SF Under Construction | Asking Rent Per SF | |
| Logistics | 6.9% | 5,201,020 | $17.17 |
| Specialized | 4.2% | 776,052 | $17.13 |
| Flex | 7.5% | 167,685 | $24.87 |
Los Angeles Industrial Supply & Demand Dynamics
Source: CoStar Group, Inc.
Construction
Source: CoStar Group, Inc.
Construction activity in Los Angeles’ industrial market remained steady but subdued, with total space under development declining to 6.1 million SF—down from the cycle peak of nearly 8 million SF. Despite elevated vacancy and softening rents, developers continued breaking ground, driven by demand for modern facilities near the ports. The quarter saw the completion of notable projects such as the 505,000-SF Goodman Commerce Center in Long Beach, which remains available for lease. However, only about 20% of projects underway were preleased—well below national averages—indicating hesitancy among tenants. Construction remained focused on mid-sized buildings, as only a handful of developments exceeded 500,000 SF, and competition within the 100,000–300,000 SF segment remained intense, with vacancy rates for recent deliveries still above 25%.
Construction Starts (SF)
Source: CoStar Group, Inc.
Under Construction (SF)
Source: CoStar Group, Inc.
Sales Activity
Sales activity in the Los Angeles industrial market showed modest improvement over 2024 levels but remained well below the peak volumes seen in 2022. Elevated interest rates, declining rents, and the ongoing impact of the ULA transfer tax on deals above $5 million continued to weigh on transaction volume and pricing. Institutional investors and REITs maintained a dominant presence, accounting for approximately 40% of acquisitions over the past three years, while user acquisitions and private investor participation continued to decline.
Cap rates expanded further in Q2, rising into the mid-5% to low 6% range, reflecting greater investor caution and downward pressure on valuations. Despite the pricing headwinds, institutional buyers such as Rexford, CenterPoint, and Prologis remained active, targeting well-located assets in anticipation of long-term performance gains once market conditions stabilize.
Sales Volume & Market Price Per SF
Source: CoStar Group, Inc.
