Industrial REITs Flash Warning as Vacancy Triples in Priciest US Market
Orange County's industrial real estate market sees vacancy surge from 1.8% to 5.5%, signaling a rapid shift in the once red-hot logistics sector.
A sharp rise in vacancy rates in Orange County, California—long considered the nation’s most expensive and tightest industrial real estate market—is sending a chill through a sector that has been a darling of investors for years. The vacancy rate in the key logistics hub has more than tripled, climbing from a mere 1.8% to 5.5%, according to a recent report that signals a decisive shift from a landlord’s market to one favoring tenants.
The sudden glut of available space in this critical Southern California market points to weakening demand and pricing power for industrial landlords after a multi-year boom fueled by the e-commerce surge. This trend poses a significant headwind for real estate investment trusts (REITs) with heavy exposure to the region.
The weakness is not entirely isolated. While the jump in Orange County is particularly stark, it reflects a broader cooling across the Greater Los Angeles area. The overall industrial vacancy rate for Greater LA climbed to 4.6% in the fourth quarter of 2025, its highest level in a decade, as noted by analysts at Cushman & Wakefield. This normalization comes as a wave of new construction, initiated during the height of pandemic-era demand, is finally delivered to the market just as tenant demand begins to moderate.
This softening is a direct challenge for companies like Rexford Industrial Realty, Inc. (REXR), a REIT that focuses exclusively on infill industrial properties in Southern California. With a market capitalization of approximately $10 billion, Rexford’s strategy is a pure-play bet on the region’s continued dominance as a logistics hub. While the company has a strong portfolio, the shifting market dynamics could pressure rental growth and occupancy rates.
Contrasting with the coastal cooling, the national outlook for industrial real estate remains one of guarded optimism. Broader market analysis for the coming year projects a rebound in net absorption and notes that the pipeline of new construction is decelerating rapidly across the country, with speculative development at 10-year lows. This suggests that the issues in high-cost markets like Southern California may be more of a localized correction than a national downturn.
Prologis (PLD), the world's largest industrial REIT with a market capitalization of over $123 billion, serves as a global bellwether for the sector. While its vast and diversified portfolio provides a buffer against regional downturns, its significant presence in Southern California means it is not immune to the trend. The company's performance will be closely watched as an indicator of the sector's overall health.
Investors appear to be weighing these conflicting realities. While some are pulling back on concerns of oversupply, others see a market that is simply returning to a healthier equilibrium after a period of unsustainable growth. Recent data from Bisnow shows that investment sales in Greater LA saw an uptick in late 2025, suggesting some private buyers believe the market is nearing a bottom.
For now, the era of unbridled rent growth and near-zero vacancy in America’s top industrial markets appears to be over. The focus for investors in the coming months will be on leasing velocity and the ability of REITs to maintain occupancy and rental revenue in a more competitive environment.