Tariffs chill Southern California’s vast industrial property market
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Demand for warehouses used to move goods through Los Angeles County ports is expected to fall if widespread tariffs take effect, potentially damaging the economic vitality of one of the world’s largest industrial real estate markets.
Leasing of buildings used to collect and distribute imported goods has slowed at least temporarily as businesses wait to see whether the tariffs take hold at their announced rates or ease through negotiations.
President Trump on Wednesday temporarily backed down on his tariffs on most nations for 90 days, but raised his tax rate on Chinese imports to 125%.
If tariffs cause imports to fall 25% as predicted by the Tax Foundation think tank, the result “would be severely negative for the industrial market” with rising vacancy and slowing of new construction, analyst Jesse Gundersheim said.
Many business owners are hesitant to expand into new space because they don’t know how tariffs are going to affect demand, he said.
Among the imports that typically move through regional warehouses are electronic consumer goods such as televisions and computers, and apparel including clothes and shoes.
“Are all of these tariffs going to go into place? Will some be negotiated down? How long will they last?” said Gundersheim, a senior director of market analytics at real estate data provider CoStar. “The unknown around it is not good for business. It’s not good for decision making.”
With Trump’s across-the-board 10% tariffs worldwide and higher tariffs imposed on a number of Asian trading partners, economists say it’s likely that one of the key drivers of the Los Angeles-area economy — trade — will be hit hard.
The tariffs include additional duties of 24% on Japan and 25% on South Korea. On Wednesday the president raised his tax rate on Chinese imports to 125%.
Canada and Mexico were excluded from both the baseline and additional tariffs, which could ease the effects at the grocery store. Most U.S. produce imports come from Mexico and Canada, including avocados, cucumbers and mushrooms. But the countries still face 25% levies on certain goods and 25% tariffs on cars and light trucks.
Key drivers of Los Angeles’ economy — trade and logistics — will be hard hit by the tariffs announced by the Trump administration, economists say.
The tariffs would cause imports to fall by slightly more than $800 billion in 2025, or 25%, the Tax Foundation said.
Although only goods trade would be directly affected by tariffs, the indirect effects would be wide ranging, analysts said. One of the many industries that stands to be affected by tariffs is real estate.
Southern California is the fourth-largest industrial property market in the world, after the entire U.S., China and Japan, said Laura Clark, chief operating officer of Rexford Industrial Realty Inc.
The Los Angeles real estate investment trust owns and operates 425 industrial properties in Southern California with a total of more than 50 million square feet. Its tenants include businesses in wholesale trade, manufacturing, warehousing and transportation, retail trade and construction.
“Macroeconomic uncertainty is probably the biggest challenge tenants” face, she said. “This is a very fluid time in the market and the news feels like it’s changing constantly.”
Uncertainty around the cost of doing business could cause tenants to delay making decisions about expansions or business formations in the near future.
Trump’s worldwide tariffs are putting the squeeze on several high-profile L.A.-based toy makers and apparel companies.
“It’s just too early to see how tenants are responding and how their decision-making will change,” Clark said.
Fortunately for landlords, the unpredictability arrives at a time when the region’s industrial property market has seen a pickup in tenant demand compared with last year, she said, with demand for industrial buildings across a wide variety of sectors including aerospace, electric vehicles, defense, manufacturing and first-mile and last-mile consumer goods distribution.
“We’ve also seen strong growth in the construction trades,” she said, focused on building more housing across Southern California and the beginnings of increased demand for space to service reconstruction of structures destroyed in the January wildfires.
Completion of new industrial properties in Southern California was at a 10-year low in 2024, according to a recent report by real estate brokerage JLL. That’s led to declining vacancy and an uptick in rents, “setting the stage for the next cyclical upturn.”
But economic growth forecasts, JLL said, “are unable to capture the volatile and unpredictable policy environment under President Trump” because “the time scale over which tariffs can change and thus will affect the economy is subject to political whim.”
“The impact on global growth, and growth in many economies, is certain to be negative,” the report said, “but we cannot gauge the magnitude.”
Businesses are slowing their orders for imported goods as tariffs and uncertainty rise, said David Fan, JLL’s senior director of research for Southern California. “Customers are taking longer to decide” if they want to make wholesale purchases.
Wholesalers will pass at least some of the additional costs along to their customers, he said, “but it’s also eating into their margins a little bit.”
Consumer spending at the retail level is “still looking solid,” Fan said. However, “it would not be surprising if people had less discretionary money to spend ... if everything we have to pay for is going to be more expensive.”
Tariffs may be a long-term positive for the industrial property sector if they rise up to the administration’s goals of increasing the manufacturing reshoring to the United States, real estate researcher CommercialEdge said. “In the short term, tariff uncertainty will lead to delayed leasing decisions” by tenants.
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