Positive absorption, strengthening occupier demand, and improving leasing fundamentals point to a healthier industrial market across much ofthe Greater Los Angeles Basin.
The Greater Los Angeles industrial market continued its recovery during the second quarter of 2026, with leasing activity translating into executedtransactions and positive net absorption across many of the region’s key submarkets. While market conditions still vary by geography and product type, the overall direction of the market continues to improve.
Year-to-date, the Los Angeles Basin has recorded approximately 1.76 million square feet of positive net absorption, with second-quarter absorption exceeding the same period in 2025 by roughly 900,000 square feet. As more tenant requirements convert into completed lease transactions, market fundamentals are gradually shifting toward a more balanced and in select markets, increasingly landlord-favorable environment.
Aerospace and Advanced Manufacturing Continue to Reshape Demand
One of the most significant trends influencing today’s market is the continued expansion of aerospace and advanced manufacturing companies throughoutSouthern California.
The South Bay remains the epicenter of this activity, capturing more than 93% of the sector’s venture capital investment since 2021. However, demandis beginning to extend into the San Gabriel Valley and portions of the San Fernando Valley as occupiers seek high-quality industrial facilities capable of supporting sophisticated manufacturing operations.
These users consistently prioritize:
- Class A industrial facilities
- Significant electrical infrastructure (4,000+ amps)
- Buildings capable of accommodating specialized tenant improvements
As a result, many of these transactions are establishing some of the strongest lease comparables recorded in 2026.
Submarket Performance Continues to Diverge
Although the overall market continues to strengthen, recovery remains uneven across the basin.
The South Bay continues to lead the region, driven by aerospace, advanced manufacturing, and demand for modern Class A distribution facilities.
The San Gabriel Valley posted one of the strongest quarters in the region, supported by consistent leasing activity in the mid-market segment and more than 700,000 square feet of positive net absorption.
The Mid Counties and Central Los Angeles markets remained generally stable during the quarter.
Meanwhile, the San Fernando Valley continues to lag other major industrial submarkets, primarily due to slower leasing activity from entertainment-related occupiers.
Mid-Market Industrial Properties Remain Exceptionally Healthy
Industrial buildings between 50,000 and 150,000 square feet remain one of the strongest segments of the Greater Los Angeles market.
Leasing velocity within this size range has remained healthy across much of the basin, particularly in the San Gabriel Valley. Recent transactionsare also beginning to demonstrate measurable rental rate growth among comparable assets, providing early evidence that landlord pricing power is gradually returning.
The Multi-Tenant Market Remains Competitive
For industrial properties below approximately 50,000 square feet, availability remains elevated compared to the post-pandemic market.
Occupiers generally have multiple alternatives to evaluate, creating continued competition among landlords. As a result, many owners remain focusedon maintaining occupancy and retaining existing tenants, particularly on shorter-term lease renewals that preserve future opportunities to capture market rent increases.
Development Activity Remains Constrained
Ground-up industrial development continues to face significant challenges.
Higher land costs, elevated construction pricing, and California’s AB 98 regulations continue to limit new speculative development throughout theregion.
Many landowners now face difficult strategic decisions:
- Develop into today’s rental environment
- Sell land below historical acquisition costs
- Hold entitled sites while waiting for stronger market conditions
As a result, recent land transactions continue to be dominated by owner-users rather than speculative developers.
Large Distribution Facilities Face a Different Dynamic
For larger Class A distribution buildings, the Inland Empire continues to influence pricing throughout the Los Angeles Basin.
Many occupiers evaluate Inland Empire alternatives before committing to higher-cost infill locations. However, despite that competition, the inventoryof buildings exceeding 250,000 square feet and particularly those larger than 500,000 square feet,remains limited within Greater Los Angeles, supporting long-term value for well-located assets.
Market Outlook
Industrial fundamentals continue to strengthen as tenant activity increasingly converts into executed lease transactions.
While recovery is occurring at different speeds across submarkets, the overall direction remains positive. Looking ahead, continued positive absorptionand tightening availability suggest improving conditions through the balance of 2026, with the potential for meaningful rental rate growth emerging during 2027.
For occupiers, this may represent an opportunity to secure long-term space before additional pricing pressure develops. For owners, improving marketfundamentals are beginning to restore leverage in many leasing discussions, particularly for well-located, high-quality industrial assets.
Erik Larson