{"id":129476,"date":"2025-08-08T16:23:21","date_gmt":"2025-08-08T16:23:21","guid":{"rendered":"https:\/\/www.europesays.com\/us\/129476\/"},"modified":"2025-08-08T16:23:21","modified_gmt":"2025-08-08T16:23:21","slug":"socals-commercial-property-market-struggles-to-find-tenants-q2-2025","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/129476\/","title":{"rendered":"SoCal\u2019s commercial property market struggles to find tenants \u2014 Q2 2025"},"content":{"rendered":"

Why this matters: <\/strong>The bullish market following the 2020 recession reversed track in 2022 and has fully collapsed \u2014 now the commercial market is nowhere near finding a bottom in tenant demand and vacancies. <\/p>\n

The second quarter (Q2) 2025 reports on the Southern California (SoCal) <\/strong>commercial property market are in from VOIT Real Estate Services<\/a>.<\/p>\n

2025 is looking like a wait-and-see year of fallout from chaotic national and global trade policies unpredictably and selectively affecting the use of commercial real estate in SoCal \u2014 which includes the areas of San Diego<\/a>, Orange County<\/a>, Los Angeles<\/a> and the Inland Empire<\/a>.<\/p>\n

Vacancy rates<\/strong> \u2014 the percentage of commercial space available for rent \u2014 is hovering around 8% for San Diego and Inland Empire industrial real estate, while San Diego and Orange County office space is around 15% vacant. With such elevated vacancy rates for the office sector, expect more office-to-residential conversions<\/a> \u2014 and a drop in rental rates \u2014 to develop as the force of recession<\/strong> shapes landlord response.<\/p>\n

Orange County and Los Angeles industrial real estate has a comfortable vacancy rate of about 5%, as well as San Diego retail, based on landlord concessions rather than simply adjusting monthly rent, an inevitable but landlord-abhorred event. As capitalization (cap) rates<\/strong> rise, landlords, to keep property values from falling, are pushing monthly rent amounts up, rent-free months, discounts for rent paid by the due date, tenant improvement (TI)<\/strong> upgrades and relocation expenses.<\/p>\n

Most of the industrial real estate <\/strong>sector is experiencing a decline in demand. This once white-hot market, the investment of choice for many only a few short years ago when interest rates <\/strong>were low and space was scarce, is now finding incentives to retain commercial tenants. Those landlords who do not will soon experience long-term vacancy conditions.<\/p>\n

Volatility remains high for SoCal\u2019s commercial property amid global trade disputes, tariffs and territorial wars, especially with SoCal\u2019s Ports of Los Angeles and Long Beach, and proximity to the Mexican border.<\/p>\n

Again, commercial landlords continue to offer tenant concessions like rent-free months annually to attract tenants rather than simply reducing monthly rent. This gimmick tricks cap rates and multipliers<\/strong> into calculating a higher property valuation. Underlying the landlord effects is the fact commercial tenants have become cautious, uncertain about trade, the economy and their businesses. On top of this, commercial brokers are gaming fees by submitting letters of intent (LOIs)<\/strong> to existing and prospective tenants with term options for costly two- or three-year short-term rent rates and far less costly five- or ten-year long-term rates.<\/p>\n

Further, leasing agents assisting commercial landlords and tenants are barely adjusting, if at all, to the public policy introduced legislatively this year of representation agreements <\/strong>for landlords and tenants to stop the fixing of fees. Yes, it is codified as agency law but mostly ignored by unaware clients. Meanwhile, government agencies haven\u2019t acted. The objective is for tenants to be in on fee negotiations since it is their promise to pay rent that fuels payment of the fees. Without the tenant paying rent, there will be no broker fees.<\/p>\n