The Details.
Looking at an overall market report can be helpful, but without context, it can be misleading. Each submarket, city, neighborhood and even building is uniquely positioned within the greater market. In this section, we aim to shine light on the nuances of the four primary regions of Orange County. As you can see, rental rates tend to be higher as you move south, and lower towards the north end of Orange County. What is consistent is that availability across all submarkets is increasing at a steady pace, and pricing has started to adjust accordingly.
The Big Picture.
The below table offers a snapshot of market average figures for the whole of Orange County. The market has been on a steady decline since its height in 2023, and tenants are finally in a position to take advantage of the situation. The three primary factors driving this softening market are (i) an oversupply of new development, (ii) a spike in sublease inventory and (iii) weakened demand due to macro-economic factors. While this trend mirrors what is happening on a national level, the market correction we have seen in Southern California has been more pronounced than nearly any other region in the country. Tenants are now downsizing their operations en masse and the result is the highest level of sublease inventory we’ve seen in decades. In Orange County, 17% of all available space is sublease space. These subleases are one of the primary factors driving pricing down and availability up. This is the softening of the market in action.
The Buzz.
- Inland Empire Leads the Pack in Losses
- The neighboring Inland Empire was a bastion of industrial demand during the pandemic, but in its aftermath, we’ve seen the region suffer from a severe market correction. Q2 2025 saw over 4M square feet of occupancy loss in the region and a 15-year high vacancy rate of 8%.
- Tariffs and the Ports
- Tariff negotiations drove a sharp decline in imports from China this quarter, resulting in a 30% year-over-year drop in volume in May 2025. Should the federal administration secure the trade deals as planned, it may result in a similar spike in demand, which would be a harbinger for industrial real estate demand returning.
The Trend.
The true health of any market should be judged not by its vacancy rate, but its availability rate instead. In other words, we should worry less about what is currently physically vacant, and more about what is coming to market in the near future. For years, the trendline for availability was down and to the right as the market continued to tighten, but we have now watched the full cycle turn to the benefit of tenants. Unfortunately, these figures are not capable of truly illustrating how favorable today’s market is for tenants. They do not include the incredibly large concession packages most landlords are providing today, which include low annual increases on rent, large tenant improvement allowances and up to a year in free rent.
The Neighbors.
Southern California boasts some of the highest rental rates in the country. As a result, many companies that do not have an operational need to maintain a facility in the region have elected to relocate or expand out of state. Many major markets like Dallas, TX or Raleigh, NC can offer state-of-the art properties at less than half the cost of Southern California. These real estate savings often outweigh any costs of relocating, but must also be measured against operational costs such as drayage, labor, taxes, etc. Below is a snapshot of average real estate pricing across the country.
Market statistics provided by CoStar Group.
