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REAL ESTATE WATCH: Airport/Central Coast Area

The greater John Wayne Airport area is a major force in Orange County’s industrial market.

It represents about 27% of OC’s total industrial square footage in about 2,000 buildings totaling 68.6 million square feet. The greater airport area is the second largest industrial market in OC—behind only the North County submarket.

The airport area is primarily made up of manufacturing and warehouse buildings representing 79% of the market. The research and development sector is responsible for the remaining 21%.

Lease rates continued to drop and vacancy increased during the third quarter as businesses continued to feel the effects of a slow economy.

The average asking lease rates for manufacturing and warehouse buildings in the third quarter was 62 cents per square foot. This was a 5 cent per square foot drop from the second quarter’s average asking rate.

While this decrease is significant, it displays only a small glimpse into the overall trend of declining rents in the market.

Since the third quarter of 2008, when rents were at an average asking rate of 79 cents per square foot, the average asking rate for manufacturing and warehouse buildings has plummeted 21.5%.

Asking rates for research and development buildings haven’t fared much better. The third quarter marked a 6 cent per square foot reduction in asking rates from the second quarter, from $1.03 per square foot to 97 cents.

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Increasing vacancy rates were the primary contributor to the reduced asking lease rates. The manufacturing and warehouse segment saw a significant increase in vacancy—from 4.3% to 5.1%.

While not as drastic, research and development buildings also saw an increase in vacancy, up from 3.9% in the second quarter to 4.4% in the third quarter.

These increases can be attributed to continuing negative absorption in the market.

Manufacturing and warehouse buildings saw negative absorption of 474,802 square feet and research and development buildings chipped in with negative 70,618 square feet.

These figures combined equate to a reported negative absorption of 545,420 square feet for the third quarter and a reported year-to-date figure of negative 822,589 square feet.

Closing out the year, declining lease rates are expected as vacancy rates continue to climb.

On the bright side, with declining rates and more supply to choose from, it is a phenomenal time to be a tenant in the market. Companies forecasting a need to expand their facilities will be able to negotiate very favorable terms that will benefit them in the years to come.

Wright is a senior vice president in the Newport Beach office of CB Richard Ellis Group Inc.

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