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Thursday, Mar 28, 2024
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INDUSTRIAL MARKET

In the first quarter, considerable challenges to our economy existed; yet, the Orange County industrial market continued to exhibit strength with strong rents (78 cents per square foot) and high tenancy (2.8% vacancy).

The industrial market remains tight, as increasing land values have slowed construction and kept inventory low. No construction starts began in the first quarter; however, two new buildings were added to the market, which stands just above 246 million square feet.

The manufacturing and warehouse demand remains resilient. North Orange County has seen reduced user activity in the first quarter, resulting in an overall negative net absorption. Despite an influx of newly available space in some submarkets, the relocation options available to expanding and larger tenants remain limited.

In the first quarter, a total of 185,351 square feet of negative net absorption occurred. North County manufacturing and warehouse experienced a substantial number of new availabilities, totaling more than 1.6 million square feet.

Following a countywide decrease in the fourth quarter, gross activity experienced slightly below 2.6 million square feet of total gross activity in the first quarter.

In contrast, the greater airport area manufacturing and warehouse market doubled its gross activity from the fourth quarter, aided by several significant lease transactions in Santa Ana.

South Orange County, with its large percentage of research and development properties experienced several lease expansions, absorbing buildings with long-standing availability. Overall, the research and development market and the small building for-sale markets have slowed and the time to lease and sell these properties has increased. However, the value of these properties has remained stable.

Average asking lease rates held steady at 78 cents per square foot, up 5 cents from the first quarter of 2007.

Sale prices remain firm at $175.22, just less than a 5% increase year to date. Despite a slowdown in sale velocity, thanks in large part to the ongoing credit crunch, transactions do continue, totaling 307,348 square feet in the first quarter.


Net Absorption

The demand for industrial space continued into the first quarter with the greater airport area and South County experiencing the greatest volume of activity.

The 402,292 square feet of positive net absorption seen in the airport area this quarter was a result of strong activity of 426,666 square feet posted by the manufacturing and warehouse segment, and offset by the 24,374 square feet of negatively absorbed space in the research and development market.

Although the North Orange County submarket posted negative 585,739 square feet of net absorption, gross activity stayed strong but was shadowed by more than 1.6 million square feet of space new to market.


Vacancy and Availability

Record-low availability and vacancy rates continue in the OC market. The county’s availability rate ticked up from the fourth quarter to 6.3%. This increase was due to a rise in the manufacturing and warehouse availability rate from 5.4% to 6.1%, a result from more than 1.7 million square feet of new available space on the market, primarily in the cities of Anaheim and Fullerton.

The research and development sector experienced a minimal bump to 7.5% from 7.4% in the fourth quarter.

The overall vacancy level for both industrial sectors increased from 2.7% to 2.8% at the beginning of this year. The manufacturing and warehouse market vacancy rate ticked up slightly to 2.8%, while the research and development market rate of 2.7% remains unchanged from the fourth quarter.

Of the submarkets, West Orange County holds the highest total vacancy rate of 5.3%, nearly half a percentage point higher than the fourth quarter. Conversely, the greater airport area possesses one of the lowest overall rates of 2.1%, down slightly from 2.6%.


Average Asking Lease Rates

Asking rents remain strong for OC industrial space. Year to date, the average asking lease rate for manufacturing and warehouse space has gained a total of 3 cents to 71 cents per square foot. The research and development market maintains $1.03 per square foot asking rents for the second quarter.

Due to its abundant amount of research and development space, the South Orange County submarket saw the most significant year-over-year asking rent increase of 19 cents to $1.22 per square foot.

The West Orange County submarket fell by 2 cents to a 67 cents total asking rent first quarter, while the airport area added 4 cents to 86 cents per square foot. North Orange County experienced an overall retreat of 2 cents first quarter to stand at 66 cents per square foot.

Average asking sale prices also remained steady experiencing a slight decrease in the first quarter at an average of $175 per square foot. The manufacturing and warehouse market asks an average of $167 per square foot, whereas research and development properties rose to $218 per square foot.


Construction

Two properties completed construction this quarter totaling 86,700 square feet. One building is located in Anaheim and adds another 23,700 square feet to the city of Yorba Linda. In Santa Ana, a warehouse and distribution building completed construction totaling 63,000 square feet.

Currently, all but one of current construction projects is focused in the North Orange County submarket where 18 buildings totaling more than 293,000 square feet continue to be built. South Orange County currently has 61,000 square feet under construction.

Although the first quarter saw the last construction completions for the greater airport area, several planned redevelopment projects remain available for short-term lease awaiting entitlements and improved market conditions. This follows a wave of redevelopment of large industrial spaces that have been “cut up” into industrial condos for sale

or lease.


Data and analysis by CB Richard Ellis Group Inc.

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