Southern California’s Industrial Warehouse Market Plays an Anxious Waiting Game

In 2024, the bustling Port of Los Angeles processed 10.2 million shipping containers, the boat-born boxes that carry the goods of global trade. Measured via a stat called TEUs, the annual haul was the second-most in the port’s history and a 20 percent jump from the year before. 

This May, port watchers expect the harbor to be relatively quiet, as President Donald Trump’s tariffs — now 145 percent on Chinese goods — tank shipping volumes. The last cargo vessels from China that set sail before Trump began ramping up tariffs in early February have already docked, signaling the steep dropoff expected in trans-Pacific cargo. Port of L.A. Director Gene Seroka expects the number of ships to drop by 25 percent, with overall trade volume falling by a third. A report by Apollo Global Management suggests the levies will lead to empty store shelves, spur layoffs in the trucking and retail sector, and precipitate a recession in just a few months.

The entire U.S. economy and supply chain has tried to adjust and brace for the impacts of the tariffs, and that includes Southern California’s industrial warehouses. The impacts on those will depend on factors such as tenant base and the duration of any higher tariffs. 

Few sectors remain as closely tied to the comings and goings of California’s ports than those warehouses. Roughly 13 percent of the GDP of the Greater L.A. region and $93.3 billion in tax revenue depends on shipping and logistics, according to a presentation by Stephen Cheung, president and CEO of the Los Angeles County Economic Development Corporation. 

More than 2,000 foreign-owned firms in this industry operate, and rent storage space, in and around the global commerce hub. Saying the region’s roughly 2 billion square feet of industrial real estate might be impacted is an understatement. Disrupting the trade on which warehouse construction and operation hinge could have a critical and long-term impact on the region’s economy. The day after the April 2 tariff announcements, warehouse giant Prologis’ share price dropped 9.6 percent.

“This is like the Dodgers winning the World Series last year, and then just trading all their players and saying, ‘We’ll figure something out when the draft comes along,’” said former California Gov. Gray Davis on the logic of tariffs during the LAEDC call about the port slowdown. 

The owners and operators of industrial real estate in Southern California, while certainly anxious about the impact, haven’t hit the panic button yet, despite the prediction that port real estate will be particularly hard hit. Part of the reason is the diversity within the sector and SoCal itself. About 75 percent of logistics real estate demand in Southern California is tied to local and regional distribution, according to Prologis research. Authors of the Prologis report believe this “blend of uses — serving both import flows and end consumption — will help insulate the region’s logistics real estate from sharp swings in trade activity.”

But, as tenants feel out tariff impacts and rework their real estate strategies, the entire sector — massive retail warehouses in the Inland Empire, port-adjacent property, and small last-mile delivery centers — still grapples with uncertainty. Jeff Jennison, president and CEO of Watson Land Company, told reporters that he’s seen South Bay industrial users, all solid credit tenants, hit pause starting in late April. “Decisions have stopped,” Jennison said, with meaningful expenditures delayed. 

“Most folks will delay any major decision-making if possible,” said David Fan, JLL’s Southern California senior research director. “A lot of major capital decisions, such as moving out or constructing a new facility, are wait and see.”

The length of the tariffs, and whether they prove to be cudgels for trade deals, will impact different parts of the warehouse world differently. As Fan noted, large big-box retailers like Walmart have incredibly complex and detailed logistics operations. If the current scenario drags on — and it was dragging as Commercial Observer went to press — these retailers will be more apt to quickly reduce their footprint. 

Part of the response depends on how tariffs impact consumer spending and consumption. March data, Fan noted, showed an uptick, in part due to shoppers stocking up. A quick end to these charges, and trade deals that lock in certainty, could lead to soaring stocks, renewed spending, and a bullwhip effect where demand for warehouse space surges. 

“If you’re looking for big-box space that lends itself to 3PL, especially China, that’s going to be a tough go,” said Brett Turner, senior managing director of acquisitions and dispositions for BKM Capital Partners, which operates a portfolio of small-bay spaces. (3PL is the industry shorthand for third-party logistics.) “If you’re smaller, and your space lends itself to American manufacturing, I think you’re going to be in a really, really good spot.” 

Preparation also helps, and the warehouse industry has been bracing for impact for months. Chinese 3PL providers like Alibaba and JD.Com went on a leasing spree in anticipation of supply chain challenges. Such providers made up more than half of leasing activity in Los Angeles and the Inland Empire during the second half of 2024, and fully 80 percent in the fourth quarter alone. 

Coming after the regional warehouse industry had overbuilt and started to see the kind of depressed rents and slowdowns that signaled a (relative) space glut in 2023 — average vacancy was 2.7 percent in 2023, about half the 5.1 percent seen this year — this overzealous planning helped normalize the market, slashing vacancy and restoring supply-demand balance. The leasing activity during the first three months of 2025, 13.9 million square feet according to CBRE, was 62.5 percent higher than the same period last year and 20.7 percent over last year’s quarterly average. 

Coming after the COVID supply chain crises, which led to a shift toward stockpiling and safer supply chains — less just-in-time and more just-in-case — makes the industry more prepared.

“COVID made these businesses realize that customer acquisition cost is hugely important, and if you screw up your supply chain and can’t deliver product to your customers, it’s going to cost you a lot of money,” BKM’s Turner said. “I think we’re pretty well prepared to go through this. I don’t know that it’s the best policy, and you can argue that all day, but if there’s a time that America can deal with it from an industrial supply standpoint, it’s now.”

Fan also tracked end-of-year expansion from blue-chip clients and American retail firms, many of which felt bullish on the tax cuts and fiscal stimulus they expected from the then-incoming Trump administration. On its recent earnings calls, Prologis noted that companies like Amazon, Home Depot and FedEx have in recent months all been rushing in goods and seeking out overflow space.

Deferred tenant decisions, in the short term, will impact net absorption rate in Q2 and beyond, predicted John Nahas, managing director of L.A.-based Rexford Industrial, which operates a 51 million-square-foot portfolio of smaller spaces in the region. He doesn’t see tariffs totally stalling the market — Rexford itself saw more absorption in Q1 than during the back half of last year — but the impact remains unpredictable.  

Tenants who have worked hard to establish supply chains won’t just jump out of leases, said Nahas, because there’s no tariff clause. His firm has roughly 11.2 percent of its portfolio subject to renewals in 2025, and he’s not alarmed.

At the same time, many of the bigger tenants and big-box players will be attuned to the way tariffs hit American consumers. JLL’s Fan called the sector a sensitive barometer of economic activity, with retailers sure to rapidly adjust inventory and warehouse utilization. Right now, rents are declining, vacancies are increasing, and 6.6 million square feet of warehouses remain under construction in the Greater Los Angeles area, so significant shifts would ripple throughout the industry. 

“There’s been a higher percentage of economists saying there’s a higher chance of recession, and most of our markets are geared toward consumption rather than manufacturing,” he said. “To that extent, we will be impacted.”

Fan said he’s keeping his eyes on the Chinese 3PL leases, which now lease about 4 percent of the total SoCal market. Since American consumers spend so much more than their overseas counterparts, Chinese firms are keen to establish more trade here, and have signed long-term leases during their recent attempt to shore up space. If tariffs last long enough for them to run through their pre-positioned inventory, their next moves will have a big impact. 

The fundamentals of the market could carry the sector through a sure-to-be unsteady year, Fan said. And the long-term push toward logistics efficiency will hopefully lead firms to make investments to optimize their delivery strategy — Amazon just announced a potential $15 billion nationwide investment in new facilities, for instance. Hopefully, faster, better and cheaper still matter.