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Thursday, Mar 28, 2024
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REAL ESTATE WATCH: Manufacturing & Warehouse

Vacancy is up, absorption is negative, asking rates are down and Orange County’s industrial sector is in a major state of turmoil.

Or is it?

While vacancy, absorption and asking rates serve as the standard barometer for market health, a closer look at these statistics reveals a trend toward stability in the leasing sector—but an uncertain horizon for sales.

OC’s industrial base counts slightly more than 207 million square feet. Vacancy increased 60% in the second quarter from 4.8% a year earlier. The average asking lease rate declined 9 cents per square foot from the second quarter of 2008.

Absorption was a negative 306,891 square feet compared to the negative 1.4 million square feet in the first quarter.

What does this all mean?

While a 60% jump in vacancy in one year is significant, a vacancy rate of 4.8% is relatively low and remains among the lowest on the West Coast when compared to other leading industrial markets such as the Inland Empire (9.3%), Oakland (9.5%), Phoenix (15.2%), Seattle (7%) and Los Angeles (3.5%).

OC’s negative absorption can be misleading, as well, because it is difficult for a market to record significant absorption with relatively low vacancy. Significant negative absorption for several consecutive quarters would concern me.

Absorption for the three quarters through March averaged negative 1.5 million square feet. The second quarter’s negative 306,891 square feet of absorption was at a much lower rate of loss, a positive step in the right direction.

Activity in the second quarter, not including renewals, was just shy of 1.7 million square feet, which is slightly higher than the average for the three preceding quarters, but below the quarterly average of nearly 2.2 million square feet for 2006 and 2007. The largest lease deal was Arden Engineering’s five-year lease of 99,858 square feet at 1540 Page Court in Anaheim.

The largest sale deal was KTR Capital Partners’ $25.5 million purchase of the 296,019-square-foot Santa Ana Distribution Center on Standard Avenue. The largest user sale was e-commerce distributor XR LLC’s purchase of 37,245 square feet at 15251 Pipeline Lane in Huntington Beach for $5 million.

Notices of delinquency filings and foreclosures have remained limited throughout the industrial sector but are expected to rise as debt obligations mature and banks’ attempts to work with delinquent borrowers fail.

Securing financing for investment properties continues to be challenging but owner-occupied financing through traditional and Small Business Administration sources remains readily available.

Niles is a first vice president in the Anaheim office of CB Richard Ellis.

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