Industrial market activity climbed 3% from the first quarter to the 3-million-square-foot mark in the second quarter.
Gross activity is also up year-over-year by a little more than 1 million square feet. The year-to-date gross activity now totals 6.8 million square feet.
The North Orange County submarket contributed the most activity to the total, ending the quarter with close to 1.6 million square feet. The Greater Airport Area submarket generated a little more than 900,000 square feet of gross activity, representing a small decrease of about 175,000 square feet from the first quarter.
The county’s overall net absorption was negative 252,220 square feet at the end of the second quarter. The North and the West OC submarkets had positive net absorption generating 184,570 and 81,457 square feet, respectively.
The Greater Airport Area and the South OC submarkets ended the quarter with 370,917 and 147,330 of negative net absorption, respectively. The county’s overall net absorption is down year-over-year by 114,585 square feet.
The overall availability rate dropped from the first quarter’s rate of 7.8% to 7.4%, while the vacancy rate had a slight uptick from 3.4% to the end second quarter at 3.5%. The availability rate is a significant decrease from the second quarter of 2011, when it stood at 8.5%.
Lower Availability
The availability rate for manufacturing and warehouse dropped from 7.2% last quarter to 6.8%. The research and development sector also saw a decline in availability from the previous quarter, dropping from 10.8% to 10.4%.
The vacancy rate for research and development increased for the third consecutive quarter, rising from last quarter’s 5.1% to now standing at 5.9%, while the vacancy rate for manufacturing and warehouse remains at 3%. Big-box class A properties, in comparison, carry a vacancy rate of 6.8%.
The average lease rates and sale prices continue to climb, making it the fourth consecutive quarter the Orange County industrial market has witnessed an increase.
Overall, asking lease rates are up 1 cent from the first quarter, ending the second quarter at $0.63 per square foot. The overall asking sale price increased from $125.67 per square foot to $127.84 per square foot. Rents for the M&W sector have increased by 2 cents from the previous quarter, ending the second quarter at $0.56 per square foot. The R&D sector, however, had a decrease of 5 cents from the previous quarter to now stand at $0.79 per square foot.
Development in Orange County remained unchanged this quarter with 110,350 square feet still in the construction phase. This includes one 84,350-square-foot speculative manufacturing and warehouse building in Brea that recently broke ground and a 26,000-square-foot build-to-suit for Tilly’s Inc. in the Irvine Spectrum. Construction for industrial space in Orange County had been nonexistent since the third quarter of 2010 up until the 26,000-square-foot build-to-suit broke ground in the third quarter of 2011. However, as the Los Angeles Economic Development Corporation states: “As firms pick up the pace of hiring, demand for Orange County commercial space will increase, eventually sparking a turnaround in non-residential development.”
In addition Orange County is also starting to see the demand for state-of-the-art big-box buildings pick up. With this in mind the market should see developers’ interest in building in Orange County peak as well.
Absorption, Lease Rates
The OC industrial market had 252,220 square feet of negative net absorption in the second quarter. Year-over-year net absorption increased by 114,585 square feet.
The North OC submarket generated the most amount of net absorption, ending the quarter with 184,570 square feet of positive absorption. This, however, was partially offset by the Greater Airport Area’s negative net absorption of 370,917 square feet.
The manufacturing and warehouse sector generated 107,553 square feet of positive net absorption, overall. Last quarter represented an increase of about 222,000 square feet from the second quarter of 2011. Research and development ended the second quarter with 359,773 square feet of negative absorption.
The average asking lease rate for OC industrial space jumped up 1 cent from last quarter to 63 cents per square foot. Lease rates have been gradually moving upward in the region, equating to a year-over-year increase of 6 cents per square foot. The Greater Airport Area and the West Orange County submarkets shed 1 cent from last quarter to 62 cents and 56 cents per square foot, respectively. The North OC submarket has the lowest rate with 50 cents per square foot. South OC continued to hold the highest asking rate, ending the second quarter at 80 cents per square foot.
Two buildings remained under construction in the second quarter: an 84,350-square-foot building in Brea that recently broke ground and a build-to-suit for Tilly’s in the Irvine Spectrum totaling 26,000 square feet that’s scheduled to be completed soon.
Data and analysis provided by CBRE Group Inc.
