SoCal Industrial Asking Rents Tick Down As Uncertainty Abounds

Droopy asking rents for greater Los Angeles industrial real estate have become the new normal, the latest data shows. 

Overall asking rents are down 7.7% quarter-over-quarter and 13.8% year-over-year, according to a first-quarter report from CBRE. 

The beginning of the year also marked the ninth quarter in a row of negative absorption. Seven of those nine quarters, including the first quarter of this year, saw negative net absorption of roughly 2M SF or more, according to CBRE.

Landlords and brokers are quick to put the declines into context as the leveling of white-hot pandemic-era rental growth. But they also point to broader economic uncertainty, most recently from tariffs, creating challenges for owners trying to anticipate upcoming tenant demand and making tenants hesitant to commit.

“You're seeing impacts in port-adjacent geographies, where a lot of businesses have just slowed down their shipment of goods to really wait and understand how that's all going to settle,” Dunleer CEO BJ Turner said. 

Turner's portfolio of small- and mid-bay industrial properties in the region are not yet seeing significant rent softening, he said, though there have been other tangible impacts.

“Maybe you're not getting the rent escalations — you're not able to move your rents up as much as you did a few years ago, [but] it's still relatively good,” Turner said. “None of what we've seen has put us in a position where we're concerned if we're going to be able to find a tenant.” 

In his corner of the market, Turner is also seeing the local impacts of the slowdown in the entertainment industry. Prop warehouses, costume designers, modelmakers and other industrial occupiers that supply things the industry needs are all feeling the crunch. 

On-location production in Los Angeles in early April declined 22.4% compared with the same period a year earlier, a report from FilmLA found. Soundstages have been sitting idle as well, the Los Angeles Times reported earlier this month. That translates to less activity for tangential businesses that use warehouses.

“There's just so many different small businesses that participate in the entertainment ecosystem, and they all are being affected and impacted because business is down so significantly over the last couple of years,” Turner said. 

More broadly in the market, the latest uncertainty is piling onto a collection of challenges that were already pushing up against the LA-area industrial market. 

Pointing to factors including the higher cost of capital and previous quarters’ declines in rents, Avison Young principal Patrick Barnes said he anticipates the rental declines to continue at least until there’s some real clarity on tariffs and some sense of how “the consumer is going to be able to sustain a slowdown in the economy,” Barnes said. 

Barnes anticipates rents will continue to soften between 10% and 20% this year, in part because of inventory that needs to be absorbed. 

No one knows when much-needed clarity on tariffs and their economic impact will come, but extended periods of uncertainty — and decision-makers in a holding pattern as a result of that uncertainty — could mean trouble. Barnes said that another year of declining rents, decreased tenant demand and occupiers pressing pause could be “concerning.” 

“Twenty-four months of that type of lack of activity in the marketplace is what hurts everybody involved,” Barnes said.