Defense Dollars Supercharge LA's South Bay Industrial Market

Aerospace and defense tech firms are pouring into the South Bay’s industrial market, turning a historically strong leasing submarket into the engine driving Los Angeles’ tightening vacancy and improving absorption.

Although aerospace and defense companies have been a part of the LA landscape for decades, their growth has taken off as a result of increased federal funding available for companies working in or supporting these industries, Newmark Head of Southwest Research Dain Fedora said.

Aerospace and defense users accounted for just 2% of greater LA’s industrial leasing activity in spaces totaling 100K SF or more between 2015 and 2024. As of the second quarter, that share had risen to 11%. 

Third-party logistics companies still dominate the landscape, accounting for 25% of the leases since 2025, but their share of the market has held fairly steady. 

The activity of defense users has made the South Bay an especially strong market for leasing activity. From 2010 through the first half of 2026, the submarket accounted for 34% of leases in the LA market. In the second quarter, 42% were in the South Bay, according to data provided by Newmark. 

An appropriation of roughly $153B in defense spending in last summer's One Big Beautiful Bill Act has contributed to defense companies expanding in pockets across the country. Southern California is a prime target for these companies. 

The impact on the market is likely much greater than current research can show, due to limited public disclosures available for many of the companies that support aerospace and defense tech firms, Fedora said. 

Leasing activity for the Los Angeles industrial market overall totaled 15.7M SF in the second quarter, a 40.4% year-over-year increase and a 7.6% increase over the previous quarter, according to CBRE. 

The South Bay boosted the region’s absorption numbers as a whole, Fedora said. The LA market recorded 2.9M SF of positive net absorption in Q2, “essentially the strongest performance since late 2021,” Fedora said. 

Two leases from aerospace and defense tech companies in the South Bay — Valar Atomics’s 512K SF lease in Torrance and Divergent Tech’s roughly 400K SF lease in Long Beach — topped the list for the quarter in terms of square footage. Some larger leases throughout the market by 3PLs and apparel users also boosted the numbers, including a 374K SF lease in Commerce by Line Apparel. 

Vacancy fell 20 basis points to 3.9% due to these and other occupancies across the market as a whole. 

“It’s behaving like a two-speed industrial market,” Fedora said, with aerospace and defense in the lead, driving demand.

Logistics and retail-related occupiers are still very present in the market but aren’t leading the pack anymore and are more focused on keeping costs down and operational efficiency. 

Those occupiers are still looking for space and signing leases, Fedora said, although it isn’t at the breakneck and unsustainable speed of the years immediately following the pandemic.  

With conditions beginning to improve, there are signs that occupiers are taking a more bullish view of what is to come. Average weighted lease terms are beginning to trend up, Fedora said, increasing from about 72 months in 2025 to about 83 months now.  

“That suggests to me that occupiers are locking in tenant-favorable conditions, whether it's free rents, lower rents today versus, say, three years ago,” Fedora said. “Take it while the getting is good, essentially.”