Demand Falls in Orange County: Exploring Industrial Space Trends

Declining Demand Marks the Orange County Industrial Landscape

The latest 2025 Q1 Industrial Report for Orange County has highlighted a troubling trend: demand for industrial space has fallen for nine consecutive quarters. Despite a backdrop of overall economic growth, the Orange County industrial market is grappling with significant challenges. This report reveals that asking rents have decreased by nearly 10% as occupancy rates dwindle, reflecting broader national sentiments.

Effects of Economic Trends and External Factors

One major contributing factor to this demand decline is the lingering impact of supply chain disruptions initiated by the Covid pandemic. Business owners have become cautious, deferring expansion plans amid rising interest rates and uncertainties surrounding tariff implementations. The slowdown impacts not only larger industrial players but also affects the smaller businesses that rely on these larger entities for stability.

Submarket Focus: Diverging Fortunes in Orange County

Amid this turbulent environment, the four submarkets of Orange County reveal contrasting experiences. Notably, the North County submarket has emerged as a beacon of hope, registering positive net absorption due to significant leases from major companies like Straub Distributing and Legrand Manufacturing. In stark contrast, the South County and Airport submarkets faced major losses, indicating a deeper, systemic issue affecting tenant stability in those areas.

Trade Activity Contrasts Demand Declines

While demand for industrial space falters, a different narrative unfolds at the ports. The Port of Long Beach and the Port of Los Angeles have reported record-breaking trade volumes, with strong activity suggesting that retailers are still actively sourcing goods amidst potential tariffs. This dichotomy of increasing trade activity and decreasing local industrial capacity presents a complex picture of the Orange County economy.

Looking Ahead: Market Sentiments Shift

Interestingly, there are signs of improved business sentiment as reported by Cal State Fullerton’s quarterly economic expectations survey, which saw a notable increase from the previous quarter. This uptick in optimism may catalyze renewed interest in the industrial market as businesses recalibrate their strategies to adapt to economic shifts.

The Road Ahead for Orange County's Industrial Sector

The 2025 Q1 Industrial Report serves as a crucial touchpoint for stakeholders within Orange County's commercial real estate market. While challenges abound, the potential for recovery is within reach if businesses can navigate current uncertainties responsibly. As we progress further into the year, it remains to be seen how these evolving market conditions will shape the future of industrial real estate in the region.