Aerospace and defense companies are increasingly driving industrial leasing activity in the Los Angeles market, specifically within the South Bay submarket. According to Newmark’s Head of Southwest Research, Dain Fedora, this growth is fueled by federal funding, with aerospace and defense users representing 11% of regional industrial leasing for spaces over 100K SF as of the second quarter, up from just 2% between 2015 and 2024.
Defense Spending Fuels South Bay Industrial Demand
The rise in aerospace and defense activity coincides with the roughly $153B in defense spending appropriated in the One Big Beautiful Bill Act passed last summer. Southern California has emerged as a primary destination for companies leveraging these funds for expansion, according to Fedora. This shift has turned the South Bay into a central hub; while the submarket accounted for 34% of total Los Angeles leases from 2010 through the first half of 2026, that share climbed to 42% in the second quarter alone.
Did You Know? In the second quarter, the two largest industrial leases in the Los Angeles market were signed by aerospace and defense firms: a 512K SF lease by Valar Atomics in Torrance and a roughly 400K SF lease by Divergent Tech in Long Beach.
Market Absorption and Vacancy Trends
Total industrial leasing activity across Los Angeles reached 15.7M SF in the second quarter, a 40.4% increase year-over-year and a 7.6% rise over the previous quarter, per CBRE data. This surge contributed to 2.9M SF of positive net absorption, marking what Fedora characterized as the strongest performance since late 2021. The vacancy rate for the region dropped 20 basis points to 3.9% as a result of these occupancies.
Expert Insight: The market is currently functioning as a “two-speed” environment. While aerospace and defense firms are aggressively securing space, traditional third-party logistics occupiers—which have accounted for 25% of leases since 2025—are shifting their focus toward operational efficiency and cost control rather than rapid expansion.
Shifting Lease Terms and Future Outlook
As market conditions improve, there are indicators that occupiers are adopting a more bullish stance on the future. Average weighted lease terms have lengthened, rising from approximately 72 months in 2025 to 83 months currently. Fedora noted that this trend suggests tenants are positioning themselves to lock in favorable conditions, such as lower rents or free rent periods, while the current environment remains advantageous for them.
Because many companies supporting aerospace and defense tech firms operate with limited public disclosure, the actual scale of this industrial footprint may be larger than current research indicates. Looking ahead, the stability of this sector’s growth may depend on the continued deployment of federal defense appropriations and the ability of logistics-focused firms to balance their long-term space needs with current cost-efficiency mandates.
Frequently Asked Questions
What is driving the growth of aerospace and defense leasing in the South Bay?
The growth is primarily attributed to increased federal funding, including the appropriation of roughly $153B in defense spending from last summer’s One Big Beautiful Bill Act, which has encouraged companies to expand in Southern California.
How does current industrial leasing activity compare to previous years?
Leasing activity for the second quarter reached 15.7M SF, a 40.4% year-over-year increase. Aerospace and defense firms now account for 11% of leasing for spaces over 100K SF, a significant rise from the 2% share held between 2015 and 2024.
Are logistics companies still the primary drivers of the industrial market?
While third-party logistics companies remain a dominant force, accounting for 25% of leases since 2025, they are no longer leading the market at the same pace as in the post-pandemic period and are currently prioritizing cost management and operational efficiency.
Are you seeing evidence of this industrial shift in your own local business district?
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