The Enduring Strength of Southern California CRE
Southern California has long been recognized as one of the most dynamic and competitive commercial real estate (CRE) markets in the United States. With its combination of global trade, a diverse economy, robust demographics, and international capital inflows, it consistently draws investors, developers, and tenants.
Despite headwinds such as rising interest rates and structural shifts in the office market, Southern California continues to outperform other U.S. regions in industrial, multifamily, and select retail sectors. The PwC & ULI Emerging Trends in Real Estate 2025 Report ranks Los Angeles, Orange County, and San Diego among the top CRE investment markets nationwide — further proof of the region’s staying power.
Gateway Economy and Global Connectivity
Few regions can match Southern California’s role as a gateway economy.
- Global trade leadership: The Port of Los Angeles and Port of Long Beach combined handle more than 40% of U.S. containerized imports, making SoCal the backbone of U.S. logistics.
- International capital: According to MSCI Real Capital Analytics, Southern California continues to attract billions in foreign direct investment, particularly from Asia and Canada.
- Tourism and entertainment: With Hollywood, Disneyland, and world-class attractions, SoCal’s global tourism industry drives sustained demand for hospitality, retail, and mixed-use development.
Takeaway: Southern California’s position as a global hub ensures a steady pipeline of CRE demand, capital inflows, and long-term stability.
Industrial Real Estate: Inland Empire Leads the Nation
Industrial is the powerhouse of Southern California CRE.
- Vacancy:NAIOP reports Inland Empire industrial vacancy remains at ~3.5%, well below the national average.
- Rent growth:CoStar data shows that industrial rents in Riverside and San Bernardino counties have grown faster than most U.S. markets.
- Cap rates: Current industrial cap rates average 5.0%–5.6%, with tighter spreads near Los Angeles and Orange County.
Key Drivers:
- E-commerce growth and supply chain reshoring
- High demand for last-mile delivery and cold storage
- Proximity to ports and freeways fueling logistics absorption
Investor Takeaway: The Inland Empire remains the top industrial hub in the U.S., offering scale, stability, and long-term growth potential.
Multifamily: The Backbone of Stability
The multifamily sector continues to attract investors due to California’s structural housing shortage.
- Demand: The UCLA Anderson Forecast highlights affordability migration from LA and OC into the Inland Empire, creating demand for suburban apartments.
- Transactions:MSCI/RCA reports multifamily accounted for nearly 40% of all CRE deals in Southern California in 2024.
- Cap rates: Averaging 4.3%–5.3%, with lower rates in coastal LA submarkets.
Key Drivers:
- Growing renter population
- Limited new supply due to high construction costs
- Strong absorption rates in suburban markets
Investor Takeaway: Multifamily remains a resilient investment class, offering long-term demand stability despite short-term affordability challenges.
Office: Selective Opportunities Amid Challenges
The office sector faces pressure, but niche markets are thriving.
- Vacancy:CoStar reports Los Angeles CBD office vacancy exceeds 20%.
- Growth markets: San Diego’s life sciences cluster, Irvine’s Spectrum submarket, and West LA creative offices show resilient demand.
- Cap rates: Typically range 6.0%–6.8%, with trophy assets performing better.
Key Drivers:
- Tech, biotech, and entertainment industry tenants
- Flight-to-quality demand for Class A and creative space
- Hybrid work shifts reducing commodity office absorption
Investor Takeaway: Office investment requires surgical precision — opportunities exist in life sciences, media, and innovation-driven clusters.
Retail: Stability Through Transformation
Retail is evolving, with service-oriented and experiential properties outperforming commodity strip centers.
- Consumer spending:National Association of Realtors (NAR) reports California continues to see strong retail activity.
- Cap rates:Matthews Real Estate shows Orange County retail assets trading at 5%–6% cap rates.
- Trends: Grocery-anchored centers, lifestyle destinations, and experiential retail are thriving.
Investor Takeaway: Prime SoCal retail remains inflation-resistant, with affluent submarkets offering stable yields and strong occupancy.
Submarket Deep-Dives
Los Angeles
- Strengths: Entertainment, media, and industrial strength
- Challenges: Office vacancy, housing affordability
- Outlook: Resilient industrial + multifamily, selective retail corridors
Orange County
- Strengths: Healthcare, finance, affluent retail
- Challenges: High entry pricing
- Outlook: Balanced growth, retail and multifamily stability
San Diego
- Strengths: Biotech, life sciences, healthcare
- Challenges: Rising construction costs
- Outlook: Office demand in niche clusters, multifamily growth
Inland Empire
- Strengths: Logistics, affordability-driven housing
- Challenges: Infrastructure pressure
- Outlook: Remains the #1 U.S. industrial hub and multifamily expansion zone
Market Outlook and Cap Rates
- PwC/ULI ranks Los Angeles and San Diego among the top 10 U.S. markets for investment.
- MSCI confirms ongoing international capital flows despite interest rate pressures.
Cap Rate Forecast (Q4 2025):
👉 For an in-depth review, see our full Southern California Cap Rates 2025 Outlook.
Key trend: Expect industrial and multifamily strength to continue, retail to remain stable, and selective recovery in office.
FAQs: Southern California CRE
Why is Southern California a global CRE hotspot?
Because of its gateway ports, diverse economy, and strong international capital inflows.
Which CRE sectors are strongest?
Industrial and multifamily lead performance, followed by stable retail.
Is office space still investable?
Yes — in innovation-driven submarkets like San Diego biotech and West LA creative offices.
Where is affordability driving growth?
In the Inland Empire, where housing and industrial absorption remain strong.
What’s the outlook for 2026?
Continued industrial and multifamily strength, selective office recovery, and resilient retail.
Partner with KEYZ Commercial for Your Next Move
Southern California CRE continues to deliver opportunities for both investors and tenants. From logistics warehouses in the Inland Empire to Class A offices in Irvine and multifamily communities across Los Angeles, the region remains a long-term hotspot.
At KEYZ Commercial, we guide clients in identifying, evaluating, and acquiring properties that fit their goals. Whether you’re an investor seeking yield or a tenant searching for the right space, our local expertise and off-market access ensure confident, profitable decisions.
📞 Ready to invest or lease in Southern California?