Orange County’s Industrial Real Estate Sector Faces Sustained Downturn

Orange County’s industrial property market continues to exhibit significant weakness, with key metrics reflecting a prolonged period of declining performance. Fresh data reveals the vacancy rate climbed to 4.4% in the second quarter of 2025, marking the tenth consecutive quarterly increase.

Demand and Absorption Trends Worsen

The market recorded a negative net absorption of 310,432 square feet in Q2 2025, representing the seventh straight quarter of contracting demand. This persistent trend of weak leasing activity has driven vacancies higher for nine consecutive quarters. The scale of the downturn was particularly evident in Q1 2025, which saw a negative net absorption of -626,940 square feet. The total amount of vacant space across the county is now approaching a substantial 16 million square feet.

Key metrics illustrating the decline include:
* Vacancy Rate: Increased by 30 basis points from the previous quarter and is up 160 basis points year-over-year.
* Net Absorption: Posted at -310,432 square feet for Q2 2025.
* Total Vacancy: Nearing the 16 million square foot threshold.

Investment Sales and Pricing Experience Sharp Declines

Investment activity fell sharply in the second quarter, with total sales volume plunging 48.7% from the prior quarter to $332 million. Concurrently, downward pressure on pricing intensified. The average sales price per square foot dropped to $338, a decrease of 3.4% quarter-over-quarter and 9.0% compared to the same period last year.

One submarket defied this trend: the Orange County Airport area saw a slight 1.4% increase in its average price, which reached $360 per square foot. Despite this isolated strength, the overall market picture is clear—a definitive correction from previous peak pricing expectations is underway.

Should investors sell immediately? Or is it worth buying Orange County?

New Construction Exacerbates Market Weakness

A significant wave of new, unleased inventory is further compounding the market’s challenges. Although overall leasing activity saw a notable 35.7% year-over-year increase to over 2.2 million square feet, this was overwhelmingly offset by new supply. Of the 1.4 million square feet of new industrial space completed so far in 2025, a substantial 1.1 million square feet entered the market without a tenant.

This oversupply is forcing property owners to make greater concessions to attract renters, including:
* More generous tenant improvement allowances and free rent periods
* Increased flexibility in lease terms and durations
* Lower effective rental rates

Rental rates have softened as a result. In the Orange County Airport submarket, the average asking rent dipped slightly to $1.70 per square foot, even as the vacancy rate there rose to 6.1%. County-wide, the average triple net (NNN) rent fell to $1.54, down significantly from the $1.58 rate recorded in the fourth quarter of 2024.

Robust Labor Market Contrasts with Corporate Caution

The local employment situation remains a relative bright spot, providing a potential foundation for a future recovery. The unemployment rate dropped to 3.6% in May, positioning it below both the California average of 4.9% and the national rate of 4.2%. Forecasts predict employment growth of 1.0% in 2025 and 0.8% in 2026.

Nevertheless, businesses are displaying increased caution. Despite Cal State Fullerton’s Economic Confidence Index reaching a three-year high of 85.9, companies are contending with higher borrowing costs, broader economic uncertainty, and the impact of trade tariffs, all of which are suppressing investment and expansion plans.