What to expect for the balance of 2026

Summer 2026 is over. As the last tent was collapsed at the International Street Fair over the weekend, fall signaled its return, albeit with high temperatures, humidity and a bit of rain. Hurricanes in the Pacific will do that, but I digress.
 
Other than Christmas decorations in our local home improvement stores, what can we expect in our industrial real estate market for the final months of 2026?
 
Allow me to forecast.
 
Vacancy will remain elevated, but the worst may be behind us.

Depending upon whose statistics you follow, Orange County industrial vacancy ended the second quarter somewhere in the mid-5% to upper-6% range. One major brokerage firm pegged vacancy at 5.5%, its highest level in 20 years. Other surveys calculate it somewhat differently.
More important than the precise number is the direction.
 
After several years of companies shedding excess space, leases expiring and newly constructed buildings searching for occupants, we are beginning to see signs of stabilization. Industry reports show positive absorption for the third consecutive quarter in Q2.
 
I expect that trend to continue through year-end. Vacancy may bounce around, but I don’t anticipate another dramatic increase.
 
Lease rates will find a floor.

Average asking rents have fallen considerably from their late-2023 peak. Recent market reports place average asking rents around $1.49 per square foot, triple net, compared with $1.80 at the peak. Other surveys place the current average slightly lower at $1.46.
 
That correction was necessary.

For several years, occupants renewing leases faced enormous increases. Today, they have choices. Landlords are competing again, concessions have returned and tenants willing to commit can negotiate.
 
My prediction? Asking rates remain relatively flat through the balance of 2026, but effective rents, after free rent and tenant improvements are considered, will continue to favor occupants.
 
Large buildings will continue to struggle more than small ones.

This is really several industrial markets masquerading as one.
 
Recent market data indicates that buildings between 5,000 and 10,000 square feet had vacancy below 2% in the second quarter. Buildings between 100,000 and 250,000 square feet had vacancy exceeding 14%.
 
That is an enormous difference.

Small owner-user buildings remain scarce. Large distribution facilities have considerably more competition. Expect that disparity to continue.
 
Construction will virtually disappear.

Only a fraction of the industrial space that was under construction a couple of years ago remains in the pipeline. Recent market reports counted just 676,000 square feet underway at midyear, down almost 66% from a year earlier.
 
With land prices, construction costs, interest rates and existing availability where they are, speculative development is difficult to justify.

That lack of new construction will eventually matter. Demand doesn’t have to explode for vacancy to tighten when very little new inventory is being added.
 
Owner-user sales will remain frustrated by financing.

Here is the wildcard.

Companies still want to own their buildings. Many simply dislike the monthly payment created by today’s borrowing costs. Meanwhile, owners who bought years ago at much lower prices and interest rates have little incentive to sell.
 
Consequently, good owner-user buildings should continue to command attention, but transactions will take longer and buyers will scrutinize pricing more carefully.
 
The Federal Reserve provides little clarity. Policymakers enter their September meeting divided over whether rates should remain unchanged or move higher, with inflation data likely determining the outcome. 
 
Finally, 2027 decisions will begin early.

This may be the biggest story of the fourth quarter.
 
Companies with leases expiring in 2027 and 2028 should be evaluating alternatives now. For the first time in several years, occupants have leverage. Waiting until 90 days before expiration wastes it.
 
So, my forecast for the balance of 2026?

More balance. More negotiation. Fewer cranes. Motivated landlords. Selective buyers. And considerably more opportunity for occupants willing to make decisions before everyone else does.
 
Oh, and Christmas decorations appearing sometime after Labor Day.
 
Apparently, some forecasts are easier than others.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
 
 

Client services

On occasion, one of our clients outgrows its local facility, expands into another part of the country, or needs real estate advice in a market beyond our expertise.
When that happens, our role changes.

Rather than simply referring the client to a broker in another city and hoping for the best, we employ what I call a client services approach. It includes the traditional brokerage functions of identifying alternatives, touring properties, negotiating terms and completing a transaction, but adds another layer: analysis, accountability and strategy.

Think of us as the quarterback.

We remain responsible for understanding the business requirement, helping establish the real estate strategy, identifying and engaging the right local professionals, keeping everyone accountable, comparing alternatives on a consistent basis and making certain the recommendations support the client’s larger business objectives.

Over the years, I’ve found these assignments generally begin in one of three ways.
A client has outgrown its existing operation and needs more space. A company is expanding geographically and entering a market it doesn’t know. Or an existing location somewhere outside our home market reaches a decision point: renew, relocate, expand, contract, buy or perhaps exit altogether.
In each case, our process begins before we look at a single building.

Understand the requirement
What is driving the assignment? Growth? Labor? Customers? Transportation? Cost? An acquisition? A lease expiration?

Square footage is important, but it is rarely the entire story. We want to understand headcount, equipment, power requirements, loading, clear height, yard requirements, employee commute patterns, customer proximity and the timing of the decision.

More importantly, we ask what the new location must accomplish for the business.

Build the strategy
Once we understand the requirement, we can determine where the search should occur and what alternatives should be considered.

Sometimes the answer is obvious. Frequently, it isn’t.

Should the company lease or buy? Should it expand its existing operation or open another? Is the preferred market really the best market? How do occupancy costs, labor availability, taxes, incentives and transportation compare among several locations?

This is where analysis becomes particularly important.

Assemble the local team
Commercial real estate remains remarkably local.
A broker who works a market every day understands ownership personalities, upcoming vacancies, off-market opportunities, municipal issues and nuances that someone parachuting into town simply won’t know.

Our job isn’t to pretend we possess that knowledge. It is to find the professionals who do.
We identify and vet local brokers and, when necessary, attorneys, architects, contractors, economic-development officials and other specialists. The client gets local expertise while retaining a single point of strategic accountability.

Create accountability
Here is where the client services model differs most from a simple referral.
We stay involved.

We establish the process, timetable and deliverables. Alternatives are compared using the same criteria. Proposals are analyzed consistently. Calls are scheduled. Responsibilities are assigned. Deadlines are tracked.

Someone owns the process from beginning to end.

Execute the transaction
Eventually, all that strategy and analysis must produce a result.

A building is selected. Economics are negotiated. Due diligence is completed. Documents are finalized. The company moves in.

Those are familiar brokerage functions. But by the time we reach them, much of the important work has already occurred.

Years ago, I believed our value as commercial real estate brokers was largely measured by how well we knew our local market.

I still believe local knowledge is enormously valuable.

But when clients grow beyond our geography, our responsibility grows with them. Our value becomes less about knowing every available building and more about knowing how to build the right strategy, assemble the right team, analyze the choices and hold the process accountable.

Sometimes the best way to serve a client isn’t to have all the answers.

It’s to make certain the right questions are asked, the right experts are engaged and someone remains responsible for getting the client where it needs to go.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.