Rexford Industrial Realty’s portfolio focuses on Southern California — a region where industrial real estate was white-hot but has cooled recently — yet the bumpy road others are anticipating for the region isn’t materializing for the company.

Rexford reported a Q2 2023 net income of $56.9M, up from $40M in the same period last year, a 40% increase. Net income attributable to shareholders for the second quarter also increased to $51.6M in 2023 from $36.1M last year.

In Q2, Rexford secured 129 leases, 53 of them new, for 2.1M SF of leasing activity in the quarter. Average occupancy for the second quarter across the Rexford portfolio was 98%.

“We are seeing our infill markets normalizing in terms of market occupancy compared to the extraordinary levels achieved during the pandemic,” co-CEO Michael Frankel said on Rexford’s second-quarter earnings call Thursday. “Directionally, occupancy is approaching pre-pandemic levels, which at that time also represented a very strong market.”

Rents were also normalizing from the more than 100% rent growth that Rexford’s portfolio saw during the pandemic, Frankel said.

Other major players in the SoCal market, such as Prologis, are also calling the slowing a normalization, but are proceeding with more caution, especially in the once white-hot Inland Empire, where net absorption just went negative for the first time in two decades.

Some Prologis customers are looking outside of the Inland Empire, a juggernaut within the SoCal market, and leaving the region for other Southwest markets, causing the company to reduce its rent growth forecast in SoCal for the year. But Prologis company executives put these setbacks in the context of a market that was almost too hot and certainly not sustainable.

“When something has escalated by 150%, I wouldn't be surprised if it backslid some,” Prologis Managing Director for Global Strategy and Analytics Chris Catan said on the company’s second-quarter earnings call Tuesday. “Do I worry about Southern California becoming a difficult market? No.”

Rexford echoed confidence in the market’s longer-term outlook. The SoCal market and Rexford’s profits from it are, in part, protected by the high barrier to entry there that creates “the lowest threat of disruption from new supply of any major market in the nation” as well as for a sustained demand for the range of sizes that the company holds in its portfolio, Frankel said.

Executives for Rexford also downplayed the effects of the labor discussions that were ongoing until last month, when terminal operators and port workers reached an agreement. Those negotiations, which were often held up as a factor in reduced cargo to the ports, mainly impacted big-box properties and their tenants, Frankel said.

“Our tenants in the infill markets in Southern California are disproportionately serving regional consumption and therefore a little bit less concern about how they get the goods there,” Frankel said.

Rexford is still scooping up properties, dropping $83.3M in the second quarter on three deals, including an off-market transaction for $41.2M on a 135K SF Irwindale property. Rexford has spent $904.9M year-to-date buying new properties in SoCal.