2026 Los Angeles Commercial Real Estate Market Forecast
- gloryanng8
- Nov 28
- 5 min read
Los Angeles remains one of the most complex, high-demand, and resilient commercial real estate (CRE) markets in the United States. As we move toward 2026, the city’s CRE ecosystem continues to be shaped by demographic shifts, evolving workplace expectations, rising construction costs, logistics demand, and a major transformation in how businesses use physical space.
While interest rate pressure and tighter lending are influencing short-term decision-making, Los Angeles is still a premier market for industrial, retail, office, and mixed-use development.
In this 2026 forecast, RPM Commercial Real Estate breaks down the biggest opportunities and challenges ahead—and how property owners, developers, and investors can position themselves strategically for the year ahead.
For foundational insights, you may also review:
The Economic Climate Going Into 2026
Los Angeles CRE is influenced by several macro factors:
• Slower but stable economic growth
LA’s economic engine remains diversified—technology, logistics, aerospace, creative industries, biotech, entertainment, and hospitality continue to drive demand across multiple sectors.
• Inflation softening but still elevated
This affects construction costs, tenant improvement budgets, and lease negotiations.
• Supply constraints in industrial real estate
Vacancy remains low across the South Bay, with major demand around:✔ LAX✔ Long Beach Harbor✔ El Segundo✔ Torrance✔ The 405 and 110 corridors
View industrial listings:
• Return-to-office policies advancing slowly
LA office demand is shifting toward:✔ Smaller spaces✔ Flexible layouts✔ Amenity-rich buildings✔ Hybrid-friendly locations
Explore office listings:
Sector Forecasts for 2026
Now let’s break down the projected performance of each major CRE sector in Los Angeles.
Industrial Real Estate — Still the Strongest Performer
Industrial remains the most stable and highest-performing asset class going into 2026.
Why Industrial Demand Remains High:
Southern California ports handle 40% of US imports
Expansion of logistics, aerospace, EV manufacturing, biotech
Increased need for last-mile distribution
Scarcity of available land
Vacancy rates in areas such as El Segundo, Torrance, and Redondo Beach remain low, continuing to support strong rental rates.
Explore South Bay industrial:
2026 Industrial Forecast:
✔ Rents remain stable or increase slowly✔ Demand remains higher than supply✔ Owner-user purchases remain strong✔ High demand for 10,000–50,000 sq ft spaces
Office Space — Stabilizing With Hybrid Work
Office demand is still evolving, but signs of stabilization are emerging.
What Tenants Want in 2026:
Smaller footprints
Close proximity to residential neighborhoods
High parking ratios
Updated interiors
Modern HVAC and safety systems
Flexible lease terms
Los Angeles office users are choosing convenience over prestige, shifting demand toward:
✔ Torrance✔ Manhattan Beach✔ El Segundo✔ Redondo Beach
Explore these markets:
2026 Office Forecast:
✔ Demand grows for 1,000–5,000 sq ft suites✔ Class A and updated Class B outperform outdated buildings✔ Amenities matter more than ever✔ Flexible layouts are essential
Retail — A Strong Rebound Continues
Contrary to headlines, retail is thriving in LA—especially service-based and experience-driven tenants.
Top performers in 2026 include:
Medical
Fitness
Pet care
Beauty and wellness
Quick-service food
Essential services
Retail in El Segundo and Redondo Beach continues to outperform.
Explore:
2026 Retail Forecast:
✔ Shift toward small-format footprint✔ Increased demand for neighborhood retail centers✔ Higher importance of co-tenancy mix✔ Smart landlords offering flexible TI packages win
Mixed-Use Properties — High Growth Potential
Mixed-use continues to thrive due to LA’s dense population and growing demand for walkable communities.
Growth Drivers:
Residential + retail integration
Transit-oriented developments
Oversupply of outdated retail converted to mixed-use
Younger renters seeking walkability
Expect more conversions in 2026 as developers reimagine older inventory.
Learn more:https://www.rpmres.com/post/why-mixed-use-properties-are-the-future-of-commercial-real-estate
The Biggest Challenges Facing Owners in 2026
1. High Operating Costs
Insurance, utilities, and maintenance remain elevated.
2. Tight Lending Conditions
Higher rates mean stronger financial review requirements.
3. Rising Vacancy in Class C Office Buildings
Obsolete layouts are significantly underperforming.
4. Increasing Environmental Regulations
Energy compliance, water restrictions, and emission standards impact operations.See: https://www.rpmres.com/post/environmental-regulations-that-affect-leasing-commercial-property-in-southern-california
5. Tenant Retention Challenges
With more options available, tenants expect high-quality management and amenities.
Opportunities for Investors in 2026
• Value-add office properties
Renovations create leasing leverage.
• Industrial owner-user purchases
Demand remains strong for warehouses near the coast.
• Retail repositioning
Smaller service-based tenants outperform.
• Submarket expansion
South Bay, Long Beach, and West LA remain strong.
Strategies for Property Owners in 2026
Property owners will need to:
✔ Modernize space quickly✔ Offer flexible lease structures✔ Maintain strong property management✔ Upgrade HVAC and lighting systems✔ Invest in parking, signage, and access✔ Target tenants using data, not assumptions✔ Audit CAM fees and pass-throughs
FAQs
1. What sector will perform best in Los Angeles in 2026?
The industrial sector is projected to remain the strongest performer due to ongoing demand for logistics, aerospace, manufacturing, and last-mile delivery space. LA’s limited industrial inventory and proximity to the ports keep vacancy extremely low, making industrial real estate the region’s most resilient asset class.
2. Is office leasing recovering in Los Angeles?
Yes, the office market is stabilizing, but in a new form. Demand is shifting toward smaller, flexible, amenity-rich spaces that support hybrid work. Locations near residential communities—such as El Segundo, Torrance, and Manhattan Beach—continue to outperform traditional downtown office districts.
3. Will industrial rents increase in 2026?
Industrial rents may see modest increases depending on submarket supply. While the aggressive rent spikes seen in 2021–2022 have softened, the South Bay still faces limited availability, which puts upward pressure on rents, especially for modern spaces with updated loading and power.
4. Which areas have the strongest commercial real estate demand?
The South Bay remains the most active and strategically important submarket due to its proximity to the ports and LAX. High-demand cities include El Segundo, Torrance, Long Beach, and Manhattan Beach. These areas attract industrial, office, and retail tenants because of strong infrastructure, workforce access, and business growth.
5. What types of tenants are expanding in Los Angeles in 2026?
High-growth tenant categories include medical, fitness, pet care, aerospace, EV-related production, food and beverage, logistics, and professional services. Service-based retail continues to outperform apparel and traditional retail tenants.
6. Are smaller office suites more desirable now?
Yes. With hybrid work becoming permanent for many companies, smaller 1,000–5,000 sq ft office suites with strong amenities, natural light, meeting rooms, and flexible layouts are the most sought-after.
7. What is the outlook for retail space in 2026?
Retail remains strong, especially neighborhood centers and service-driven businesses. Consumers increasingly value convenience and local access, leading to higher demand for medical retail, boutique fitness, salons, dessert vendors, and fast casual dining.
8. How will interest rates affect commercial real estate in 2026?
Higher interest rates result in tighter lending conditions, more cautious underwriting, and slower investment transaction volume. However, well-located properties with strong tenants continue to perform reliably, and leasing fundamentals remain stable.
9. Are mixed-use properties still strong investments?
Yes. Walkability demand, population density, and zoning changes continue to make mixed-use developments attractive. Many older retail properties are converting into residential-over-retail, helping revitalize communities and increase property value.
10. What challenges should property owners prepare for in 2026?
Owners should anticipate rising operating costs, insurance premiums, environmental compliance requirements, tenant retention challenges, and the need for modernization. Buildings without recent upgrades may struggle to compete, especially in the office sector.