The downward trend of Orange County industrial vacancy rates continued throughout the fourth quarter.
The vacancy rate declined from 3% in the third quarter to 2.9%, the lowest recorded since the second quarter of 2008. The market should see a leveling off of the rate, since it can’t go much lower.
Demand for industrial space continues to grow, and the lack of supply and new development is pushing values up. That’s allowed for a large increase in prices, particularly for small building sales, whose prices have increased up to 10% from one transaction to the next.
The county’s average asking sale price, with the help of the small-building market, increased approximately 7.5% over the past 12 months to stand at $137.29 per square foot.
The market is transitioning and becoming more favorable to landlords as they gain leverage in negotiating rents and concessions with tenants.
The North Orange County submarket, with its significantly larger base, generated the most gross activity among the four submarkets, ending the quarter with nearly 798,000 square feet. It also held the lowest availability and vacancy rates: 4% and 2.3%, respectively.
The availability rate in the county declined from 5.6% in the third quarter to 5.2%.
CBRE Econometric Advisors forecasts the downward trend to continue, with the availability rate dropping to 4.7% over the next 12 months.
The average asking lease rate remained stagnant, at 66 cents per square foot.
The North Orange County submarket decreased 1 cent from the third quarter to 56 cents per square foot.
The West Orange County market also dropped 1 cent to 59 cents per square foot.
The Greater Airport Area and South Orange County submarkets remained the same at 68 cents and 83 cents per square foot, respectively.
Rents are expected to grow by 10% over the next 12 months.
Development has picked up momentum since the end of 2012. There was 864,794 square feet of industrial space under construction at the end of the fourth quarter, all in the North Orange County submarket.
The first two phases of the Anaheim Concourse Distribution Center remained under construction and are scheduled to be completed midyear.
The lack of available land and competition with residential developers makes it hard for additional industrial space to be built in other areas of the county.
Additionally, a 209,374-square-foot manufacturing and warehouse building was completed in Anaheim in the third quarter.
Several projects remain in the pipeline and should be under way in the near future.
Analysis provided by CBRE Research
