Orange County 2Q 2025 Industrial Market Report

OVERVIEW

Orange County’s industrial market entered 2025 in a mode of cautious realignment. Activity continues, but both landlords and tenants are pausing to reassess amid shifting external pressures. Rising tariffs have disrupted supply chains and caused some occupiers to defer space needs until inventory and logistics stabilize. In addition, recent federal legislation has expanded Qualified Business Income deductions and revised Opportunity Zone rules. These tax changes are expected to bolster investor appetite but also introduce some uncertainty as implementation details settle. The result is a market defined by measured repositioning rather than bullish expansion. Users are strategic and deliberate. Owners are calibrating offers to sustain tenancy. The tone is disciplined, but not paused, as both sides adapt to a shifting policy landscape.

VACANCY & AVAILABILITY

Orange County’s industrial vacancy rate rose by 28 basis points in Q1 to 5.37% after an increase of 69 basis points in Q4. Year over year, the vacancy rate is up by more than 66%, but the pace of increase appears to be easing, as savvy landlords are getting more aggressive with concessions to get their spaces leased up. Sale inventory remains low, so the bulk of the vacancy is in spaces offered for lease. The availability rate rose another 22 basis points to 7.87%, following a 55-point rise in Q4 2024. Of note is the fact that a big chunk of the county’s overall vacancy is concentrated in several recently completed distribution projects that were delivered without preleasing activity.

LEASE RATES & SALES PRICES

Orange County’s average asking lease rate fell another $0.02 in Q1 to $1.57 after a similar decline in Q4. Year over year, asking rents are down by 7.65%, less of a drop than many expected. Effective rates, which factor in concessions like free rent, tenant improvements and rate reductions, are significantly lower. The average asking sales price fell by just over $11 PSF in Q1 to $378 PSF. Although the average asking sales price fluctuates from quarter to quarter due to the varying size of the buildings on the market, there is now a perceptible decline in valuations across the board. Stubbornly high mortgage interest rates are weighing on potential buyers who need to leverage their purchases. Year over year, the average sales price for an industrial building in Orange County is down by 7.84%.

TRANSACTION ACTIVITY

Sale transaction velocity ticked lower in Q1. Forty-six buildings changed hands during the period, down from 53 in Q4. However, total square footage sold rose to 1,566,414 SF from 966,785 SF in Q4. Elevated mortgage rates, coupled with valuations that have not adjusted far from the peak of 2022, have dampened sales activity because the activity from owner / users who utilize high loan-to-value financing offered through the SBA
has waned. Under current conditions, mortgage payments are substantially higher than the cost of leasing similar space. Leasing activity was also down in Q1. Transaction count fell to 229 from 252 in Q4, while total square footage leased decreased to 1,959,532 SF from 2,853,792 SF last period. Uncertainty over economic conditions rose again, this time over the potential impact of tariffs rather than the outcome of the election.