Prologis executives told analysts on the company’s third-quarter 2026 earnings call that Southern California’s industrial market has turned the corner, citing positive absorption, rising occupancy, a healthy Inland Empire and a Class A revival in the Los Angeles South Bay tied to aerospace users.
Southern California has spent much of the past two years among the slower U.S. logistics markets to recover, by Prologis’ own description. On Oct. 15, the world’s largest owner of logistics real estate said the turn has arrived, and that the region’s mix of aerospace manufacturers, big-box users and scarce new supply now sets its portfolio up to outperform.
“So bottom line, Southern California is recovering consistent with what we’ve been talking about throughout the year,” Christopher Caton, Prologis’ managing director of global strategy and analytics, said on the company’s third-quarter 2026 earnings call. Caton said net absorption in the region is positive and market occupancy has risen year over year to 93.5 percent. Prologis’ own Southern California portfolio, he added, is nearly 97 percent occupied.
Chief Financial Officer Timothy Arndt described Southern California as “steadily improving” in his prepared remarks, grouping it with Northern New Jersey and the San Francisco Bay Area among markets that had lagged the national rebound but are now gaining momentum.
The recovery is uneven. Caton said rents are stable, but progress varies by submarket and product quality. The Inland Empire is the strongest piece of the puzzle. “That continues to be really healthy, really strong, good momentum across a range of size categories,” Caton said, noting that vacancy is coming down at different speeds, with the most strength in buildings above roughly 600,000 square feet.
Brokerage data broadly supports that read, though it also shows landlords still giving ground on price. CBRE reported that vacancy in the Inland Empire core dipped 10 basis points in the third quarter to 7.3 percent, with the IE West holding at 5.9 percent and the IE East falling 30 basis points to 8.7 percent. Cushman & Wakefield put overall Inland Empire vacancy at 8.0 percent, down 50 basis points, on 3.9 million square feet of net absorption. Yet CBRE also found that average taking rents in the IE core fell 3.8 percent from the prior quarter to $1.01 per square foot per month, while new leasing cooled 28 percent from a record second quarter to 11.2 million square feet.
Prologis has been putting money to work in the region. Kidder Mathews’ third-quarter Inland Empire report lists Prologis as the buyer of Stratford Ranch, a 1,008,000-square-foot property in the Inland Empire East, for $193,152,500, or about $191.62 per square foot. Company-wide, Prologis acquired $950 million of real estate during the quarter at what it estimated was a 20 percent discount to replacement cost, and it raised full-year acquisitions guidance to $2.1 billion to $2.3 billion.
Los Angeles presents a more complicated picture. “Los Angeles is variable by submarket,” Caton said. The standout is the South Bay, where he said “Class A is enjoying a renaissance in the aerospace space, and that market is moving quickly.”
The numbers bear that out. Kidder Mathews reported that the South Bay posted 538,158 square feet of net absorption in the third quarter, with total vacancy at 7.2 percent and average asking rents of $1.47 per square foot on a triple-net basis, and the brokerage pointed to continued demand for Class A space from aerospace, space and satellite users. Across Los Angeles, Kidder Mathews put direct vacancy at 6.0 percent with average asking rents of $1.36. Savills counted 1.4 million square feet of net absorption across the Los Angeles market, its second straight positive quarter, concentrated in the South Bay and Commerce/Vernon submarkets.
The aerospace and defense shift has been building for several quarters. CBRE’s second-quarter 2026 Los Angeles report found that advanced manufacturing firms accounted for three of the top 10 leases in the market, all in the South Bay, including commitments from Valar Atomics and Divergent Technologies.
Prologis is also betting that a collapse in new construction will help the region’s landlords regain pricing power. Chief Executive Officer Dan Letter said nationally that “last quarter was one of the lowest start quarters in, I don’t know how long, over a decade.” Rising construction and financing costs have pushed the rents needed to justify new projects far above where the market sits today. “Today, the rents needed to justify new construction have expanded to 27 percent above current market levels,” Letter said. “That leaves meaningful room for rents to grow before new supply makes economic sense.”
Inland Empire developers are not sitting entirely still, however. CBRE counted 8.3 million square feet under construction in the IE core at the end of the quarter, up 34.8 percent from the prior quarter, driven by growing interest in big-box projects.
The regional outlook came alongside a solid quarter for the company. Prologis reported core funds from operations of $1.60 per share, ended the quarter 95.6 percent occupied and signed 60 million square feet of leases globally. Rent change on rollover hit 38 percent on a net effective basis, and Prologis raised its full-year same-store net operating income growth range to 5.5 percent to 6 percent. Core FFO guidance now stands at $6.25 to $6.29 per share.
Caton said the company’s relative performance in Southern California comes down to execution as much as the market. “Where we are in the cycle, what really matters is portfolio quality, location quality and active asset management,” he said.
The wild card is capital. Letter said the recent rise in interest rates is likely to slow transaction activity and could pressure values, and Prologis has raised its bar for deploying capital in response. Still, Caton framed Southern California as a long-term opportunity now entering its upswing. “We’ve also been clear that we expected a cyclical recovery to emerge, and that absolutely is emerging, and it positions our portfolio to outperform in the next coming years,” he said.
