While Southern California has enjoyed a particularly insulated industrial commercial development trend that even withstood the COVID-19 pandemic, we mentioned that new laws may be bringing that party to an abrupt end. But a steadily rising demand for specialized industrial property could bring relief to investors capable of accommodating aerospace and defense company needs. It’s not an easy adaptation. Nor is it an inexpensive one. But the region’s need for testing and production of aircraft, spacecraft, and defense systems could leave certain investors rethinking the way we use industrial space.
Rising Demand for Aerospace and Defense Facilities
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Numbers have already been showing an increasing demand for specialized commercial space for aerospace and defense companies for years. Speaking with the New York Times, real estate brokerage JLL’s Tom Taylor, the manager of their aerospace and defense division, confirmed that leases from relevant companies surged from 7.1 million square feet in 2022 to 11.3 million square feet in 2024. That’s roughly a 37% increase.
Likewise, CBRE, a commercial real estate services company, shared data with the New York Times indicating that defense and aerospace companies leased triple the commercial square footage of the legal industry from the end of 2023 through the end of 2024. And even while some companies are using cutting-edge technology like 3-D printing and AI to reduce their needed square footage, the numbers continue to trend upward.
It should make sense to anyone paying attention to the news. The U.S. Department of Defense broke records in 2023 with its $816 billion budget. Then it did so again in 2024 with an $841 billion budget. And even as Defense Secretary Pete Hegseth pushes for an eight percent budget cut, he’s still prioritizing spending on defense tech, including military drones and automatic weapons. With global friction higher than it’s been in years, this urgency doesn’t seem like it’s going away in 2025.
Special Accommodations for Aerospace and Defense Properties
Yet, novice commercial real estate investors will likely find that aerospace and defense leasing is a new ballgame… and one that can have quite a steep learning curve. It’s not as simple as listing your industrial property and waiting for the offers to roll in. Commercial space for aerospace and defense companies demands a higher degree of security as well as special capabilities that you won’t find in a standard warehouse or factory. This typically means that if you want to be a serious player in leasing property ideal for aerospace and defense enterprises, significant infrastructural updates are required.
When imagining the ideal commercial space for an aerospace and defense company, considerations should include:
- Ceilings (high enough to accommodate construction equipment)
- Floorplans (vast, open, able to accommodate complex machine systems)
- Power supply (higher than standard power capabilities)
- Privacy (no potential for breached confidences, lipreading, recording, espionage, etc.)
- Proximity (logistical ease, close to beneficial facilities)
- Safety( ease of sterility, robust air filtration systems)
Property owners may need to deal directly with military officials, meaning a much stricter degree of discretion is integral. Needless to say, leasing space to the aerospace and defense industry isn’t for every investor. But for those with the stomach (and wallet) for it, there’s a lot to gain as start-ups continue to flood the market searching for viable space.
Appealing to Start-Ups
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You read that right: start-ups. Even if you have a facility that can effectively accommodate the needs of aerospace and defense companies, you likely won’t be leasing directly to Lockheed Martin or Raytheon. For one, those companies are well-established, and their expansions are meticulously planned out. But to save on time and resources, the government is turning to start-ups to fast-track creative solutions for their aerospace and defense needs. So the demand we’re seeing for commercial space in the aerospace and defense sector is often coming from start-ups.
The Benefit of the Southern California Location
While trying to find industrial space that makes sense for sensitive aerospace and defense operations may seem like an uphill battle, SoCal investors have at least one advantage: location. Southern California continues to be a hotbed for the industry, with JLL confirming 145 relevant companies in the area, leasing a total of approximately 13 million square feet in Southern California. And that number’s growing all across the Golden State.
It helps that several California cities and regions recognize the benefit of hosting these companies. For example, El Segundo, which has a long history of prioritizing industrial processing and manufacturing, continues to be a very lenient city when it comes to permitting. It’s a policy that’s made it a popular spot for aerospace and defense companies, with 12 relevant companies taking up 740,000 square feet in the city. Meanwhile, a new development in the industry promises to tack on another 100,000 square feet to that figure.
Not for Everyone
If you’re not already entrenched in aerospace and defense industry property investment, we doubt this blog will be the catalyst that turns things around for you. It’s a challenging and often expensive step up, even for savvy veteran investors. But the trend is there. And it’s strong.
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