Commercial real estate markets throughout the region showed varying states of growth or stall in Q3, according to data from Cushman & Wakefield – the Southern California office leasing market had higher levels of activity in Q3 of 2025 compared with the first half of the year
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In Los Angeles, deals were concentrated in the South Bay. Several large subleases indicated that companies were looking to expand but were also opportunistic, taking advantage of plug-and-play options offering flexibility and cost efficiency. Entertainment software developer COSM and space vehicle manufacturer Varda Space Industries subleased 67,725 square feet and 54,479 square feet, respectively, from space occupied by Beyond Meat in El Segundo. Canvas Worldwide signed a deal to relocate from The Collective in Playa Vista for a 68,301-square-foot sublease in El Segundo. Professional services firm KPMG downsized to a more efficient 64,200 square foot office in Downtown Los Angeles while concurrently leasing 49,903 square feet at Continental Park in El Segundo.
In a quirk that may indicate a short-term lull in the industrial market, there were no new warehouse projects that broke ground in the Inland Empire during the quarter. That marks the first time in 20 years that the region has had no new construction starts during an individual quarter.
“It’s not a long-term situation. We’re already seeing developers break ground on sites,” said Mike McCrary, vice chairman at JLL. “We built too much too quickly and we’re at a point where we have corrected and we are now moving towards a balanced equilibrium around development.”
There was a post-pandemic construction boom for the Inland Empire, which added 100 million square feet of warehouse space since the beginning of 2021. At the end of the third quarter, there were 4.9 million square feet under construction. The high cost of construction due to labor and material costs, along with a vacancy rate above recent historical averages coupled with uncertainty regarding economic factors, contributed to the temporary pause. The Inland Empire industrial vacancy rate climbed to 7.8% and the availability rate, which measures space that is occupied but may become vacant in the future, jumped to 11.5%.
As a result of the industrial slowdown, asking rates dropped for ten consecutive quarters in the Inland Empire and the $1.16 per square foot per month asking rate is down 9.4% year over year. In Los Angeles, asking rates fell for eight straight quarters. Nevertheless, long-term growth tells a different story. Compared to pre-COVID-19 levels in Q4 2019, average rents have grown by 48.5% in Los Angeles.
Tenants that signed leases of five or more years ago are encountering significant rent spikes, all leading to sticker shock and complex lease negotiations.
LOS ANGELES COUNTY
The Los Angeles office market vacancy rate was 23.9% and negative net absorption of 515,035 square feet resulted in a year-to-date decline in occupancy following a positive first half of the year. Market-wide asking rents moved down to $3.58 per square foot per month on a full-service gross basis. Rates are highest in West Los Angeles, where the overall asking rate was $5.13 per square foot per month for Class A space. Tenants sought furnished and move-in-ready space, which led to several large subleases in the South Bay. Deal structures have shifted to accommodate more flexible occupier needs. Deals for three or five years have become more common.
On the industrial side, vacancies have climbed to 4.8%, but availability, which includes space being marketed for lease even if not yet vacated, fell for the first time in nearly four years to 6.5%. This drop may indicate a shift in momentum for the industrial market, which peaked in activity post-COVID.
LA County Office Market
LA County Industrial Market
ORANGE COUNTY
The overall office market vacancy rate climbed to 19% as tenants have uncertainty about long-term occupancy needs. The Greater Airport Area was the most active area within the Orange County office market, accounting for 58% of leasing activity during the past quarter. The office market has been bolstered by office assets being repositioned as multifamily and industrial property. Since the beginning of 2023, roughly 2 million square feet of office product has been removed, with an additional 5 million slated for demolition in the coming years.
On the industrial side, vacancy rose for the 11th consecutive quarter. The rate increased due to a combination of both tenant move-outs and the delivery of new construction that was completed without pre-commitments. New construction is limited, with 17 buildings totaling 2 million square feet underway, with four preleased.
OC Office Market
OC Industrial Market
INLAND EMPIRE
The Inland Empire is primarily an industrial market with about 650 million square feet of warehousing and manufacturing space. The overall vacancy rate climbed to 7.8% even as activity increased. There were 3 million square feet of positive net absorption, although it was outpaced by construction completions that added 4.5 million square feet of vacant space. New construction is limited, with the smallest pipeline in more than a decade. Despite some challenges to market fundamentals from tariffs, high construction costs and high interest rates, the Inland Empire remains among the most active industrial markets in the country.
The office vacancy rate in the Inland Empire held steady at 8.6%, which is the lowest of the major Southern California markets. Medical office development is a bright spot in the area, but overall leasing activity has slowed this year compared to the prior year. Affordability is a key driver of the market, but the office tenant base is limited to small and mid-sized local businesses.
IE Office Market
IE Industrial Market
SAN DIEGO
San Diego’s office vacancy rate held steady quarter over quarter at 14.3%, according to data from Cushman & Wakefield. Tenant activity remains strongest for leases below 10,000 square feet as tenants are focused on higher-quality spaces with downsized footprints. Nevertheless, larger tenants were active with the largest lease of the quarter, signed by law firm Jones Day. Technology accounted for the highest percentage of new leasing activity at 23%, followed by government (22%) and legal services.
San Diego’s industrial vacancy fell on a quarterly basis to 7.5%. Occupancy increased primarily due to a 1.1-million-square-foot build-to-suit completion for Amazon, which ended 10 consecutive quarters of occupancy losses. County-wide, tenants are expected to lease 4.3 million square feet over the next two years. Rents for research and development spaces increased by 1.5% while manufacturing rents fell by 7.6% year over year. Manufacturing is a key driver, but technology, life sciences and defense are also major sectors.
SD Office Market
SD Industrial Market
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