Defense tech rewrites the South Bay industrial underwrite

Pentagon procurement calendars are beginning to set the price of South Bay industrial space, as the small cities adjacent to Los Angeles—Torrance, Hawthorne, Long Beach and El Segundo—convert their port-adjacent warehouses into military manufacturing hubs, a shift Commercial Observer reports has become one of the bright spots of the Southern California economy. In 2025, Los Angeles County drew more direct Department of Defense contracts than any other U.S. county, with $8.9 billion in federal funding flowing to Greater L.A., according to Chad Tredway, global head of real estate at J.P. Morgan Asset Management.

JLL’s Mac Burridge, a managing director who leads the firm’s advanced manufacturing team, framed the demand against the pandemic warehousing boom. “The growth curve we’re seeing for the South Bay right now is unprecedented,” Burridge told Commercial Observer. “It’s very akin to the Inland Empire during COVID, where there was just a frenzy for space and only a finite amount available.”

The region has deep aerospace roots, with traditional defense contractors—the primes—operating out of Greater L.A. and SpaceX, which held its blockbuster initial public offering earlier this year, incubated in El Segundo, a nexus of startups and innovation just south of Los Angeles International Airport, Commercial Observer reported. That tech activity has gone into overdrive.

The driver, Commercial Observer reports, is persistent geopolitical instability, combat that is draining weapon stockpiles, and the military's shift to high-tech warfare; defense spending is skyrocketing as a result. Last summer’s One Big Beautiful Bill Act appropriated $153 billion in defense spending on top of record Pentagon budgets, with a proposed $1.5 trillion of spending for next year. National venture capital investment in U.S. defense tech reached roughly $70 billion over the last four quarters, per Pitchbook data cited by Commercial Observer, a 63 percent jump from the four quarters prior. A record $366 billion was invested in California startups last year, driven by the AI boom, but the defense-tech boom may be even more pronounced, Commercial Observer suggests.

Tredway, who has long steered investment into high-powered industrial assets, puts the shift in stark terms. “Los Angeles has the most significant manufacturing base in the country,” he told Commercial Observer. “The Rust Belt has the old ways of manufacturing, with a lot of people in a factory. Where the industry is going is highly specialized, tech-driven defense companies. And they were all co-locating in Southern California.”

South Bay industrial vacancy now tracks Pentagon procurement calendars, not peak shipping seasons, which answers the pricing question investors face: whether to underwrite the region as logistics or as military infrastructure. That makes the asset class behave more like military infrastructure than traditional logistics real estate, an echo of the data-center capital cycle as underwriting began to look more like infrastructure than property. Sponsors who can accommodate the specialized space defense companies need are likely to be rewarded; those who still model rent growth on e-commerce volumes are pricing the last cycle.

The next industrial cycle in Southern California will be written in procurement contracts, and the sponsors who underwrite to that now will be the ones setting comps for the rest of the market.