Q1 2025 Los Angeles Industrial Real Estate Market Commentary

MARKET DRIVERS 
The Los Angeles industrial real estate market continues to face significant headwinds in early 2025, driven by a complex mix of global and domestic challenges. Geopolitical instability—including the ongoing conflicts in Ukraine and Gaza—combined with market volatility and uncertainty surrounding proposed tariffs, has created a climate of hesitation among corporate decision-makers. Many companies are adopting a wait-and-see approach, delaying major leasing or investment decisions until market conditions s…

As industrial property sale prices dip below $300 per square foot and lease rates continue to trend downward, the market is searching for equilibrium. Although the beginning of the year showed promise with an increase in property tours and tenant inquiries, that momentum faded as the quarter progressed, revealing the uptick to be temporary rather than a sustained trend.

LEASING MARKET 
Leasing demand remains soft across most submarkets. In today’s tenant-favorable environment, businesses seeking industrial space can expect generous lease concessions—on par with those seen in the early stages of the pandemic. Incentives such as free rent and early occupancy are back on the table. Class A industrial space is leasing around $1.75 NNN per square foot, while well-maintained Class B buildings are available at approximately $1.50 NNN.

With South Bay’s industrial availability hovering around 8%, tenants have an abundance of choices. As a result, the balance of power has clearly shifted in their favor, increasing negotiation leverage and expanding options for companies looking to reduce costs or secure higher-quality space.

SALE MARKET 
After a brief uptick in Q4 2024, industrial property sales have slowed once again. The deceleration is not due to a lack of capital—investors are ready to deploy funds—but rather a lack of clarity on where the leasing market stands. With lease rates drifting and tenant activity lagging, the market lacks the foundational momentum needed to restore investor confidence.

Buyers remain cautious in the absence of meaningful leasing absorption. Until leasing stabilizes and concessions recede, sale volume will likely remain subdued as pricing expectations reset across the board.

NEAR-TERM OUTLOOK 
Looking ahead, the market remains hopeful that finalized tariff policies will bring greater clarity and less day-to-day volatility. The initial optimism following the recent administrative shift has faded, and inflationary pressure continues to erode consumer confidence.

Rental rates and sale prices are softening, and while a market correction is underway, most analysts agree that meaningful stabilization will not arrive in the next couple of quarters. Without a clearer picture of rental rate floors and tenant demand, investment activity in the sales market is expected to remain constrained through mid-2025.