Published on Monday, June 29, 2026
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Retail continues to benefit from limited supply, while industrial works through excess inventory.
Commercial real estate fundamentals continue to improve, but the recovery remains highly concentrated in quality assets and the markets best positioned for long-term growth, according to a Crexi report
In California, Adam Siegel, vice president of product growth at Crexi, said that the office sector posted the largest year-over-year vacancy improvement of any major asset class. Retail continues to benefit from limited new supply and strong tenant demand and industrial is steadily working through the excess inventory created during the last development cycle.
Office Sees Flight to Quality
Siegel, in particular, sees a flight-to-quality in the office sector. That's in addition to the AI-led recovery, with vacancy rates declining by 1,100 basis points from May 2025. Plus, effective lease rates increased 4.8% year-over-year, signaling continued demand for well-located Class A office assets despite broader market challenges.
"This is California's sharpest flight-to-quality bifurcation in a generation," he said.
"Demand for trophy assets in places like Los Angeles is driving rents up by double digits YoY, and in San Francisco, AI is driving office absorption, generating demand in the millions of square feet, helping drive absorption and collapse sublease availability."
Industrial Recovery Underway
The industrial sector continued its recovery, with vacancy improving 300 basis points year-over-year and effective lease rates rising 4.4% annually.
Leasing momentum remains strongest among modern logistics and infill facilities as new supply deliveries moderate.
Siegel said overall, it's bifurcated by format, with the Inland Empire clearing faster than headlines suggest.
"The speculative supply hangover in industrial in the Inland Empire seems to be subsiding after the construction boom that occurred from 2022 to 2024," Siegel said.
"With most of that inventory online and new construction slowing due to rising costs and moratoriums in some cities, sublease inventory is dropping, and new lease signings are improving."
California industrial is a market-by-market story, Siegel said, with some experiencing extremely low vacancies, like Santa Barbara and Ventura County, where not much new supply is coming up, while we are seeing negative absorption in other markets like the San Gabriel and San Fernando Valleys.
SoCal a Destination for Retail Capital
In California retail, recovery varies by region. For example, Southern California continues to be a destination for capital deployment in the retail sector, driven by grocery-anchored, value-add and service formats. On the other hand, Orange County and the Inland Empire – with low vacancy rates and strong absorption – highlight why the market remains active and tight.
"California retail is strong overall, but certain markets are seeing more benefit than others," Siegel told GlobeSt.com.
On the flip side, Sacramento continues to struggle to return to positive numbers, with some CBD areas like downtown San Francisco still enduring high vacancy and struggling to attract tenants post-COVID.
Multifamily Continues to Stabilize
As for multifamily, it showed further signs of stabilization, with vacancy declining month-over-month to 14.9% during peak leasing season.
"While supply challenges remain in select markets, cap rates remain below year-ago levels, reflecting improving investor confidence," Siegel said.