Economic Report Cautiously Optimistic About Ports and Year-End Market Conditions

The local economy has been feeling the impact of increased tariffs and a slight economic downturn, but economic activity is expected to moderate and remain stable in the fourth quarter.

That forecast comes from Lee & Associates’ Industrial Market Insights for Q3 2025. As for the industrial and commercial real estate market in Long Beach and the South Bay, the market is shifting toward more balance, giving property occupiers more leverage, according to the report.

A slowing labor market and the government shutdown had their effects on economic conditions. Employers added only 22,000 jobs nationwide in August, showing softer hiring momentum. Health care and social assistance led gains, while federal and energy jobs declined. Average hourly earnings rose 3.7% year-over-year, which was stronger than the inflation rate and showed stable consumer spending.

It should help that the federal government is back open. It was the longest shutdown in U.S. history at 43 days.

The Federal Reserve Bank of Atlanta projects that Q3 growth came in near 3%, signaling continued economic momentum. The improvement over the second quarter highlights solid consumer demand despite lingering headwinds in business investment and the impact of tariffs on trade.

Looking ahead to the fourth quarter of 2025, economic activity is expected to moderate but remain stable despite a slowing labor market and the impact of the government shutdown. Economic forecasters anticipate gross domestic product (GDP) to come in around 2.6% annualized. That should be supported by continued consumer spending and steady business investment, especially the technology and artificial intelligence (AI)-related sectors.

Moderate expansion of the economy and cooling inflation provide a cautiously optimistic backdrop for commercial real estate markets heading into 2026, Lee & Associates says.

In a virtual news conference held on November 7, Port of Long Beach CEO Mario Cordero and Chief Operating Officer Noel Hacegaba said that while shifting trade policies and tariffs have brought uncertainty to consumers and the supply chain, cargo continues to move smoothly at the nation’s second-busiest port. Retailers had been preparing in the spring for instability by ordering early and stocking warehouses before the tariff increases hit. Cordero said that consumers will likely be cautious with holiday season purchases due to rising prices.

The Port of Los Angeles says that it processed 883,053 Twenty-Foot Equivalent Units (TEUs) in September.  While cargo eased 7.5% compared to last year, it helped propel the Port of Los Angeles to its best quarter on record, the port reported in October.

How Real Estate Is Doing

For the local industrial and commercial real estate market in the South Bay, conditions softened in the third quarter as vacancy and availability rose. Long Beach is included in the South Bay portion of the report.

The vacancy rate reached 6.9%, up from 6.3% in Q2 and 5.6% in Q1. Total availability remained high at 9.5%, while vacant-available space climbed to 6.0%, according to the Industrial Market Insights report.

Industrial rents in the South Bay declined for the sixth straight quarter, to $1.48 per square foot, down from $1.54 in Q2 and $1.61 in Q1 – an 8.5% annual drop.

For the housing market, the California Association of Realtors (C.A.R.) earlier this month reported that cooling market competition and an increase in available housing helped moderate home prices and allowed more Californians to buy homes in the third quarter of 2025.

Seventeen percent of the state’s homebuyers could afford to purchase a median-priced, existing single-family home in California in third-quarter 2025, up from 15 percent in the second quarter of 2025, according to C.A.R.’s Traditional Housing Affordability Index (HAI). Housing affordability in California stayed near its all-time low and continued to be a challenge for both buyers and sellers, according to the report.

Los Angeles County’s vacancy rate in the rental housing market, which has been hovering in the low five percent range, marks a noticeable increase compared to pre-pandemic averages, which often sat closer to four percent, according to Torrance-based Coastline Equity.

This trend indicates both a return of supply after construction delays and some tenants choosing more affordable suburban markets, says Coastline Equity.

As for the rest of the Southland, Orange County has had a 3.6% vacancy rate despite its rising rents, driven by limited new inventory and a tight rental housing supply. San Diego has had a steady five percent vacancy rate, showing a stable market with strong appeal for both young professionals and retirees. The Inland Empire has had a six percent vacancy rate, which shows the effects of rapid apartment construction and economic cooling in logistics and warehousing. These are two key employment sectors for the Inland Empire region, Coastline Equity says.

Jon LeSage is a resident of Long Beach and a veteran business media reporter and editor. You can reach him at jtlesage1@yahoo.com.