Tariffs Thought to Make Southern California Industrial Barren. Instead They Might Be Handing Tenants Their Best Window In Years
A year ago the headlines were all doom. Tariffs were going to gut demand for warehouse space tied to the ports of LA and Long Beach, and for a minute they did. Leasing slowed as importers waited to see which tariff rates would actually stick.
Fast forward to Q2 2026 and the story has flipped in a way nobody was really forecasting. Nationally, industrial absorption is on pace to hit 200 million square feet this year, up from 155 million in 2025, and a chunk of that is tariff driven. Companies that import goods are leasing 20 to 30 percent more warehouse space than they used to, not because business is booming, but because they're hoarding inventory as a hedge against the next round of trade policy chaos. Uncertainty, it turns out, eats square footage.
Here in Southern California, the port-adjacent epicenter of all this, the picture is more nuanced and more interesting for anyone occupying industrial space right now. The Inland Empire and Orange County both posted double-digit gains in leasing activity this quarter. Brokers on the ground are describing something that hasn't been true in two years, corporate America is actually writing letters of intent again, not just touring space. One Inland Empire broker put it bluntly this quarter, “the quality of demand has shifted from window shopping to actually taking down blocks of space”.
But here's the part that matters more than the leasing headline. Development has essentially stopped. The Inland Empire delivered around 12 million square feet of new industrial product in all of 2025. In the first two quarters of 2026 combined, it delivered roughly 2 million. The construction pipeline is sitting near decade lows. That's not a small detail, that's the whole story. Vacancy in the Inland Empire is still elevated, sitting in the 7.5 to 8.7 percent range depending on which brokerage you ask, and rents have fallen 23 to 34 percent from their 2023 peak. That combination, still-depressed rents plus a construction pipeline that's basically dried up, is unusual and it will not last. Once the existing vacant inventory gets absorbed by this renewed leasing activity, there's nothing behind it to keep landlords honest on price. Right now, tenants are negotiating against a landlord who's still nervous. In 18 months, that same landlord may not be.
San Diego industrial tells a quieter version of the same story. Vacancy has essentially tripled over the last three years to just above 7 percent, though it's held roughly flat year over year and remains below the national average. Rents are flat too, sitting around $1.40 a square foot. Sublease space ticked up for a second straight quarter. It's not the leverage bonanza the Inland Empire is seeing, but it's not a landlord's market either, and if you're a San Diego occupier waiting for a screaming deal, you may be waiting for a market that's already quietly stabilizing under you.
One more wrinkle worth knowing if you're a smaller importer or distributor. All this big-box leasing activity from "corporate America" doesn't help you if your footprint need is under 10,000 square feet. That segment is structurally undersupplied nationally, and it's exactly the size tier that tariff-squeezed small and mid-size businesses need most. If you're in that bucket, don't assume the broader vacancy numbers translate to easy availability for you specifically. They usually don't.
If you're sizing industrial space anywhere from the Inland Empire to San Diego in the next year, the practical takeaway is this. The negotiating leverage tenants have held for two years is still here, but it's on a countdown clock tied directly to how fast this leasing rebound eats through existing vacancy. Lock in terms while the landlord across the table is still the nervous one.
Jamal Brown, Principal
The Ocean Company