Orange County Industrial Market Q1 2025: Vacancy Climbs, Leasing Activity Slows

Orange County Industrial Market Report – Q1 2025

The Orange County industrial market faced continued headwinds in Q1 2025 as vacancy rates climbed, absorption remained negative, and leasing activity slowed across most submarkets. Persistent macroeconomic uncertainty, rising capital costs, and trade policy concerns influenced market behavior, prompting cautious tenant and investor sentiment.

Key Trends & Metrics:

• Direct Vacancy Rate: 4.8% (+53.75% YoY)
• Availability Rate: 8.7% (+44.33% YoY)
• Net Absorption: -823,333 SF (down from -368,024 SF YoY)
• Leasing Activity: 1.53M SF (-46.37% YoY)
• Average Asking Rent (NNN): $1.57/SF (down 8.72% YoY)

Market Conditions

While inventory increased slightly to 235M SF, vacancy and availability both rose sharply. Market-wide absorption was negative for the ninth straight quarter, driven largely by tenant contractions and cautious relocations. Average asking rents fell for the third consecutive quarter, reflecting both landlord concessions and reduced tenant urgency.

Sublease space and time-on-market increased, particularly in the North and Airport submarkets, while South OC showed relative resilience. Despite weak absorption, buyer interest in high-quality assets remained stable, and select owner-user activity picked up.

Submarket Highlights

North County:

• Largest inventory at 111.5M SF
• Net Absorption: -128,487 SF
• Major leases: Straub Distributing (281K SF), Legrand Manufacturing (194K SF)

South County:

• Net Absorption: -268,274 SF
• Deliveries: 390K SF
• Direct Vacancy: 3.6%, lowest in county

Airport Area:

• Highest vacancy at 5.2% and growing
• Net Absorption: -245,416 SF
• Lease examples: Motion Industries ($1.72/SF), Adient Aerospace sublease ($1.05/SF)

West County:

• Net Absorption: -181,156 SF
• Leasing Activity: 423K SF
• Strongest YoY rent gains in Huntington Beach

Construction & Development

Deliveries slowed dramatically to just 390,000 SF in Q1 2025. Active construction declined to 13.6M SF, the lowest in years, with rising lending costs and leasing slowdowns stalling pipeline momentum. However, major developments continue in cities like Irvine and Santa Ana, with projects from developers such as Prologis, Hillwood, and Goodman expected to complete throughout 2025.

Sales & Capital Markets

Q1 2025 saw robust investment activity in North County, including:

• 1501-1601 E Cerritos Ave (406K SF sold to Disney for $124M / $304.83 PSF)
• 3300 E Birch St (218K SF sold to NY Life at $421.22 PSF)

Cap rates held firm at 5.4%, and the average sale price increased to $360/SF. With continued uncertainty in capital markets, investors focused on stabilized or value-add opportunities in core markets.

Forecast

Despite Q1 softness, optimism remains. Business sentiment is improving (Cal State Fullerton index rose to 85.9%), and Orange County’s diverse economic base positions it well for long-term recovery. Leasing velocity is expected to rebound by mid-year as tenants adapt to pricing and market clarity returns. Vacancy may rise slightly before peaking, but reduced deliveries and stable demand should support a more balanced market by late 2025.