By IAN BRITTON
The North Orange County industrial market continued to recover in the fourth quarter, with vacancy falling to 4%, lease rates rising, positive absorption of 847,934 square feet and record sale values.
The overall strength of the industrial market is a result of double-digit growth in corporate profits during the past three years.
Many companies have big cash reserves and the trend of cutting costs through technology that improves labor efficiency may have run its course. To continue to grow earnings, companies finally are starting to expand, hire additional employees and take more space.
Increased pressure on Southland ports also is creating a sharp rise in demand for quality distribution space.
As the South Bay industrial submarket approaches a record low vacancy rate, tenants are moving into North County. Quality buildings in North County are being leased at the most aggressive pace since early 2000.
Another trend contributing to the tightening of the industrial market involves the rezoning and selling of older industrial properties to residential and retail developers.
Anaheim’s Platinum Triangle development is an example of cities putting long-term plans in place to boost revenue and deal with the county’s housing shortage.
Investment capital continues to flow into this market. Manufacturers who still need to operate in North County have benefited the most.
Manufacturers have been selling their properties to motivated investors at record values while signing five- to 10-year leasebacks. That allows them to reinvest nearly all of their real estate equity back into the business, where the return on that capital is much greater.
Small building sales continue to be the “hot spot” of the market. Low interest rates are fueling buyer demand and sale prices continue to climb. All of the five newly planned developments in North County cater to the small user/buyer.
With more than 3 million square feet of industrial space absorbed in 2004 and average asking lease rates increasing by 2 cents per square foot, rates will continue to move higher.
That also will impact concessions, which are expected to disappear as tenant demand increases and landlords gain more leverage.
Tenants and buyers coming out of properties that have been rezoned for different uses will be motivated to relocate their businesses. They’ll have the capital in place to buy several of the newly planned small buildings in North County.
As the industrial base tightens, sale prices will hold firm and may even increase if interest rates remain low.
Private investors and pension funds will continue to compete for a limited number of industrial properties, putting upward pressure on pricing.
Owners of multi-tenant industrial properties or assets with excess land can afford to push value at a time where land is scarce and construction costs are rising.
Britton is a senior associate in CB Richard Ellis Group Inc.’s Anaheim office.
The Real Estate Watch Chart – Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
CLICK HERE
to download REAL ESTATE WATCH
Please note: to download the file, you will need Adobe Acrobat Reader installed on your computer. For a free copy of the software,
click here.
