Industrial vacancy tightens

Industrial space is getting harder to find in Los Angeles’ South Bay, where vacancy fell to 5.0% in the first quarter and leasing hit a record pace. (colliers.com) Colliers said South Bay tenants leased 4.7 million square feet in the quarter ended March 31, 2026, up 94% from the 10-year quarterly average. The firm said 1.8 million square feet of that activity came from aerospace and defense users. (colliers.com) That demand is showing up across El Segundo, Torrance, Hawthorne and Long Beach, where Kidder Mathews said defense, aerospace, satellite and advanced manufacturing tenants are expanding. The brokerage also said demand for spaces under 50,000 square feet has been less prevalent than activity from larger users. (kidder.com) Industrial vacancy can stay low even when rents fall. In South Bay, average asking rents slipped to $1.48 triple-net in the first quarter, down 10% from a year earlier and 30% from the second-quarter 2023 peak, even as occupied space increased. (colliers.com) That split helps explain the current market: more tenants are taking space, but they are doing it in a region with little new supply. Colliers said only 143,751 square feet broke ground in the quarter, with 634,752 square feet under construction. (colliers.com) Across greater Los Angeles, the industrial market is looser than the South Bay. C B R E said the region finished the first quarter with a 5.4% vacancy rate and 8.1% availability, alongside 934,025 square feet of positive absorption, the first positive quarter since 2022. (cbre.com) El Segundo has become one of the clearest examples of the squeeze. Commercial Observer reported in March that Varda Space Industries signed a 205,443-square-foot lease at 2031 East Mariposa Avenue, the former Mattel design center, extending the city’s run of aerospace and defense expansion. (commercialobserver.com) The tenant mix has shifted from pure warehouse users toward companies that build or test products. Kidder Mathews said recent South Bay deals included Neros taking 265,000 square feet in Torrance and Varda leasing 200,000 square feet at the former Mattel campus, while Amazon still signed a 500,000-square-foot lease in Long Beach. (kidder.com) Brokers told Bisnow in March that aerospace and defense tenants are chasing a limited set of buildings near existing suppliers and engineering talent, and that the main constraint is “finding the right buildings.” That is a different problem from the pandemic warehouse rush, when logistics users dominated industrial demand. (bisnow.com) For now, the South Bay market is tightening around a narrow band of industrial space: older, well-located buildings that can handle light manufacturing, assembly or lab-adjacent production. Until more of that stock is built or converted, vacancy is likely to stay scarce even with rents below their 2023 highs. (colliers.com)