Businesses are ditching leases to buy. Discover why owner-user acquisitions signal a stabilized Southern California office and industrial market.
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When the State Compensation Insurance Fund acquired the 158,785-square-foot Class A office building at 35 N. Lake Ave. in Pasadena, the nonprofit insurance carrier joined the ranks of several mid-sized and large companies that acquired office and industrial properties over the past year. The acquisitions stem from wavering confidence from institutional investors as office and vacancy rates climb and pricing for high-quality assets resets lower.
There has been an uptick in owner-user commercial real estate acquisitions across the region. In areas such as Downtown Los Angeles, where major office buildings have been acquired by companies such as Capital Group, the trend is a sign that the market is stabilizing.
“We are seeing a meaningful shift from renting to owning in Downtown L.A., and that’s one of the strongest signals that market confidence is returning. When occupants decide to buy their buildings, it tells us they believe pricing has reached a point of long-term value and that Downtown’s future is worth investing in. Owner-user acquisitions do not happen in declining markets; they happen when users believe the bottom is in, and the next chapter is taking shape,” said Jessica Lall, managing director of CBRE in Downtown Los Angeles.
Moreover, these acquisitions can come with additional investments. For example, State Compensation Insurance Fund plans to renovate its property by adding a fitness center and meeting space that will be available to tenants. It will occupy a portion of the nine-story building as a regional hub for its Southern California operations, with the remaining space available for lease to third-party tenants.
“Acquiring this building marks an important milestone for us, highlighting our efforts to optimize our real-estate footprint and underscoring our lasting investment in the area, our valued customers, and, above all, our Southern California employees,” said Andreas Acker, chief administrative officer at State Fund, in a statement.
Brad Chelf, Ron Wade and Taylor Watson of CBRE represented the buyer in the transaction. JLL represented the seller, Swift Real Estate Partners. Swift Real Estate Partners will continue to manage the property.
For industrial properties, there was a spike in rents post-pandemic and asking rates could still be 50% higher than prior rental rates for tenants with expiring leases, while sale prices have slid due to lower overall demand due to a combination of high interest rates, tariffs and uncertainty among importers due to higher gas prices. That combination has led to some tenants acquiring their properties rather than renewing leases, as institutional investors look to realize a return on their investment.
In Orange County, Future Foam acquired two buildings for $145 million last year at the expiration of its lease, totaling 417,000 square feet. The manufacturer had previously been a tenant at the building and acquired it from investment firm Principal Real Estate Investors.
Other industrial transactions in Orange County include Robinson Pharma’s $40.7-million acquisition in Santa Ana. The supplement manufacturer acquired the 82,000-square-foot building from investor Hines to expand its manufacturing capacity. China-based Jiaherb Inc. acquired a recently built warehouse in Brea for $53.7 million from Boston-based investment firm AEW Capital Management.
Although there has been an uptick in owner-user acquisitions, there is an active leasing market for certain growing industries. Companies in the aerospace and defense sector have leased more than 2.5 million square feet across Southern California as they obtain venture funding and scale production capabilities. That includes Anduril’s announced 1.18-million-square-foot campus in Long Beach. Other firms that added capacity in neighboring areas include Hadrian, SpaceX, Varda, Northwood Space and Hermeus, among others.
“Long Beach has long been a naval and manufacturing city, with a history of building complex aircraft. Today, the next generation of companies is choosing to build and hire here again,” said Long Beach Mayor Rex Richardson, in a statement.
LOS ANGELES COUNTY
The Los Angeles office market vacancy rate increased to 23.6% as more than 1 million square feet was returned to the market by tenants contracting. In Chatsworth, North Los Angeles County Regional Center expanded its footprint at West Valley Corporate Center, and event planning company On Location signed a 108,272-square-foot lease at Union Bank Plaza in Downtown Los Angeles. Construction activity stayed limited, although one notable project was completed. Warner Bros. Ranch Lot Studios added 320,000 square feet of new office space in Burbank and Warner Bros. fully occupies the project.
In capital markets, Brookfield sold Bank of America Plaza downtown to financial services firm Capital Group, which already occupied 324,000 square feet in the building. The property sold for approximately $210 million ($150 per square foot).
For industrial, leasing activity remained steady, totaling 8.7 million square feet, which was in line with quarterly averages in recent quarters and marked the strongest opening quarter of the year since 2021. Following rapid growth through the pandemic era, the average lease asking rate has declined slowly for 10 consecutive quarters, but the $1.32 per square foot per month rent rate is 47% above the end of 2019.
LA County Office Market
LA County Industrial Market
ORANGE COUNTY
The overall office market vacancy declined to 15.7% as tenants were active and there was little new competition from new construction. Nevertheless, the average asking rate declined slightly to $2.85 per square foot per month. That rate is only part of the overall equation for landlords, who are increasingly investing in older products and rely on concessions, such as free rent and tenant improvement allowances, to remain competitive.
Orange County recorded more than $400 million in office sales across seven transactions, which was down from the prior quarter, but up 76% year over year. Pricing remained resilient, with the average sale price rising to $280 per square foot, signaling continued support for well-located, institutional-quality assets. Institutional buyers led activity, accounting for 58% of transactions compared with private investors at 42%.
The industrial vacancy rate increased for the 13th consecutive quarter, rising by 10 basis points quarter-over-quarter to 5.1%. Trade policy uncertainty and geopolitical risks continue to influence leasing activity and inventory management. Many importers remain cautious, maintaining lean inventories, which is weighing on demand for warehouse and logistics properties.
OC Office Market
OC Industrial Market
INLAND EMPIRE
The overall vacancy rate increased to 8.5%, rising 50 basis points quarter-over-quarter and remaining well above the 10-year average of 4.0%. Net absorption turned sharply negative, totaling 3.4 million square feet, driven primarily by the vacancy of four buildings each in excess of 1 million square feet. These large move-outs outweighed meaningful increases in leasing. Larger occupiers are increasingly exploring markets outside of the region to manage costs and development timelines, reflecting broader diversification strategies. Costs have risen even with softer rental rates as insurance, taxes and utilities add complexity to operations. Some occupiers saved by downsizing or consolidation.
Occupancy losses were spread across the region as all submarkets had increased vacancies. The West region had the largest increase, rising 90 basis points quarter-over-quarter to 7.3%. There is little pressure from new construction. Only one building totaling 39,628 square feet was completed while there are 3.3 million square feet across 18 projects remaining under construction, well below the peak of 40.6 million square feet in 2022.
The office vacancy rate in the Inland Empire increased quarter-over-quarter to 8.9%. Leasing demand is expected to remain steady, supported by health care, government and education. Health care and education added 27,000 jobs over the past year as overall unemployment increased from 5.3% to 5.9%.
IE Office Market
IE Industrial Market
SAN DIEGO
San Diego’s overall vacancy rate increased 40 basis points quarter-over-quarter to 15.4%, reflecting ongoing tenant turnover. Downtown San Diego remains an outlier, with a direct vacancy rate double the county average at 29.3%, which is putting downward pressure on rents. Small tenants have been the most active. By industry, professional and business services tenants led activity, accounting for 32% of new leasing, followed by life sciences (15%), government (9%) and legal services (8%).
While economic uncertainty and evolving hybrid work strategies continue to influence decision-making, many tenants remain focused on upgrading to higher-quality space. Class-A properties accounted for 62% of leasing activity last year as companies seek to incentivize in-office attendance.
San Diego’s overall industrial vacancy rate rose to 7.3% quarter-over-quarter as overall leasing activity of 1.1 million square feet represented a 28% decline year-over-year. Manufacturing remains a key demand driver, supported by San Diego’s diverse economic base, including defense, technology, life sciences and medical device production. However, job losses in the construction and trade, transportation and utilities sectors indicate slower demand for logistics and distribution space.
SD Office Market
SD Industrial Market
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