Office→Industrial conversions rise
Construction starts are slowing while office decommissioning and conversions into logistics space are increasing in gateway markets — a trend that could unlock selective new supply in the LA basin but also heighten competition for adaptable, well‑located assets. That dynamic makes location and convertibility premium negotiation points. (commercialcafe.com)
Prologis’ modeling estimates office→logistics conversions could total roughly 40–80 million square feet over the next decade, equivalent to under 1% of existing logistics stock and concentrated in high‑land‑value coastal metros. (prologis.com) Brokerage analysis shows 15.2 million square feet of office space has already been converted to industrial uses nationwide, and Newmark’s candidate profile pins likely targets as older suburban campuses averaging 15–25 acres located within about four miles of a major highway. (commercialobserver.com) Data trackers record a sharp pullback in new industrial starts in 2025 — starts were on pace to hit decade lows with ~86.9M SF through May 2025 versus 116.1M in 2024 and 158.3M in 2023, and Yardi reported a collapse to 8.7M SF of starts in November 2025 (a ~62% decline year over year). (commercialobserver.com) Local market metrics show the Inland Empire’s construction pipeline thinning: Colliers reported construction activity dropping below 5.0M SF (first time since Q1 2013) and vacancy at 7.6% in Q4 2025, while Newmark put regional vacancy at about 8.1% and available sublease space near 17.4M SF for year‑end 2025. (colliers.com) Multiple industry analyses note conversions usually require demolition or major rebuilds, raising development costs and lengthening entitlement timelines so only locations that can achieve premium rents—Southern California among them—justify the economics. (commercialsearch.com) Advisory firms warn the timeline for office→industrial supply is lumpy: zoning, existing leases, demolition, and permitting extend delivery times, which concentrates competition (and pricing power) on well‑located, highway‑adjacent sites that can command a convertibility premium. (naiop.org)
