Vacancies in the overall Orange County industrial market continued their downward trend in the third quarter, dropping to 3%, the lowest rate recorded since the second quarter of 2008.
Demand continued to grow, pushing up lease rates and property values across the county. The unemployment rate also continued to remain low, at 5.8% in October, less than the statewide unemployment rate of 8.3% and the national rate of 7%.
The average lease rate has grown over the past year by 1.6%, but the industry predicts 10% rent growth over the next 12 months.
Vacancies in the research and development sector increased 3.8% to 3.9% in the quarter, higher than the warehouse and manufacturing vacancy levels of 2.8%. Vacancies were down by 4.5% from the second quarter and by 33% from a year ago, confirming the strong recovery the Orange County R&D market experienced in 2013.
Research and development activity and net absorption dropped during the quarter, recording -100,000 square feet of net absorption despite generating 437,918 square feet of gross activity. Nearly half of the total quarterly
gross activity occurred in the Irvine Spectrum, which remains a hub for the research and development and technology industries and is the most expensive submarket of South Orange County.
Research and development asking lease rates remained constant from the second quarter, at 92 cents per square foot, triple-net, and up 13 cents per square foot since the third quarter of 2012.
We are starting to see new industrial development again, namely in North Orange County, though research and development remained nonexistent. But as market fundamentals improve and corporate users consolidate, new research and development space and even lower vacancies can be expected in the new year.
Morrow is a senior associate at CBRE.
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Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
