Los Angeles County’s industrial real estate market extended its recovery over the summer with its fourth quarter in a row of positive net absorption and its first annual decline in vacancy in at least two years.

A new report from CBRE shows industrial tenants absorbed 1.9 million square feet during the third quarter, compared with negative 2.4 million square feet during the same period a year earlier. The market has had 5.1 million square feet of absorption since the start of the year, following more than two years of quarterly losses between mid-2023 and late 2025.

The vacancy rate fell 20 basis points from both the second quarter and a year earlier to 5 percent, while leasing activity reached 13.7 million square feet, up 6.5 percent year-over-year. However, leasing volume declined 15.7 percent from the second quarter.

Demand was particularly strong for larger warehouses. Industrial buildings measuring at least 250,000 square feet accounted for almost 2.1 million square feet of positive absorption during the third quarter. Those properties represented about 96 percent of the space absorbed this year.

Smaller industrial properties have struggled, however. Buildings smaller than 50,000 square feet recorded negative absorption of 320,000 square feet during the quarter and 1.43 million square feet through September.

Despite improving occupancy, average direct asking rents held steady at $1.19 per square foot per month on a triple-net basis, following declines in 10 of the previous 11 quarters. That figure remains 4 percent below the average from a year ago, and 30.4 percent below the $1.71 per square foot recorded in the third quarter of 2023.

Central L.A. led the county with 1.11 million square feet of positive absorption, followed by the South Bay with 488,000 square feet and the San Gabriel Valley with 442,000 square feet. The Greater San Fernando Valley was the only submarket with negative absorption — 238,000 square feet in this case.

The South Bay remained the county’s most active leasing market, with 4.46 million square feet of transactions in the third quarter.

On the development side, 717,000 square feet of construction was completed during the quarter, down 38.1 percent compared to last year. However, the pipeline increased 11.3 percent from the second quarter to 4.48 million square feet, its first quarterly expansion since early 2025.

Another 1.42 million square feet of speculative industrial projects are scheduled for delivery in the fourth quarter, which could test the market’s improvement.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.