The industrial real estate market in Southern California—particularly the Inland Empire—is undergoing a significant shift. Once one of the hottest logistics hubs in the country, the region is now facing a dramatic leasing slowdown that’s forcing landlords to adapt quickly and creatively.
At Peak Commercial, we’re watching these changes closely, not just for what they say about the market today, but for what they signal about future opportunities and challenges.
A Sharp Decline in Leasing Activity
In Q2 2025 alone, the Inland Empire saw tenants vacate over 4 million more square feet than they leased. That’s one of the largest negative absorption rates in the U.S., driving vacancy rates up to 8.5%—the highest level seen in over 15 years. While Southern California remains a logistics powerhouse, the sector is clearly correcting after a pandemic-fueled surge in demand.
This trend isn’t isolated. Across the country, industrial vacancies have climbed to 7.5%, marking the first time in over a decade that tenants are giving back more space than they’re taking.
Why Is This Happening?
Several factors are converging:
- Retail Pullbacks: Major retailers like Forever 21, Kohl’s, and Home Depot are downsizing or vacating large warehouses as consumer demand normalizes.
- Economic Pressures: Interest rates, tariffs, and broader economic uncertainty are slowing expansion plans for many tenants.
- Overbuilding Hangover: The massive amount of speculative construction over the past few years has now caught up with the market, leading to an oversupply.
How Landlords Are Adapting
The good news? Southern California landlords are resilient—and resourceful.
Here are a few ways property owners and managers are adjusting:
1. Offering Flexible Lease Terms
Landlords are more willing to offer rent concessions, shorter lease durations, and custom build-outs to attract or retain tenants. These creative strategies help properties stay competitive in a market where tenants have more options than they did a year ago.
2. Targeting a Broader Range of Tenants
Some landlords are expanding their criteria to include tenants with less traditional credit profiles, especially if they have a strong business case. Others are prioritizing renewals with existing tenants, even if it means adjusting rates or offering incentives.
3. Focusing on Quality
While the market overall has cooled, Class A industrial properties and newer developments are still in demand. The “flight to quality” trend means that modern, well-located buildings with premium features are seeing more leasing activity than outdated or secondary stock.
What This Means for Investors and Owners
While this leasing slowdown might seem alarming at first glance, it also presents a window of opportunity. Owners who are proactive in adapting their leasing strategies—and investors who can identify value in underutilized assets—stand to benefit as the market rebalances.
At Peak Commercial, we’re working closely with our clients to help them understand the current climate and make strategic decisions. Whether that means repositioning an asset, exploring new tenant mixes, or timing a sale or purchase just right, we’re here to guide the way.
Looking Ahead
There’s cautious optimism in the industry that the market may begin to stabilize by late 2025 or early 2026. As supply and demand come back into balance, landlords who’ve taken thoughtful steps during this transitional period will be well-positioned to thrive.
Need strategic advice or support with your industrial property?
The experts at Peak Commercial and RJ Feder & Associates are here to help. Whether you’re leasing, buying, or repositioning an asset, we bring decades of market knowledge and a forward-thinking approach to every deal.
Contact Us:
Peak Commercial: info@peakcommercial.com – (818) 836-6717
RJ Feder & Associates: bkenrick@rjfeder.com
