Following a relatively slow start in the first half of the year, the Orange County industrial market picked up the pace in the third quarter.
Continued demand for space in this diversified market pushed vacancy rates to record-lows while activity and construction increased. Gross activity nearly doubled in the highly concentrated manufacturing submarkets of North and West Orange County while remaining steady in the John Wayne Airport area and South Orange County markets. Overall, these industrial submarkets contributed to an availability rate of 5.6%, while the vacancy rate now stands at 2.9%.
In the third quarter, 685,587 square feet
of net absorption occurred bringing the year-to-date total to 136,872 square feet of negative absorption.
The lack of available space is evident in recent low availability and vacancy levels. Demand and activity have not significantly declined, yet the amount of options available to expanding and new tenants has become limited.
Gross leases and sales did increase last quarter with more than 2.9 million square feet of activity recorded. About 2.1 million square feet of leasing activity was seen, representing a 40% increase from the second quarter.
User sales, which accounts for 29% of the total gross activity, also increased with 847,441 square feet recorded. The manufacturing and warehouse sector generated the majority of the total activity with 2.5 million square feet. The research and development market did demonstrate a slight decline of activity, which posted 459,301 square feet of gross leases and sales.
The average asking lease rate climbed another two cents this quarter to 77 cents per square foot. This combined lease rate is attributed to the average asking research and development rate of $1.02, as well as manufacturing and warehouse rents of 71 cents per square foot. The average asking sale price rose to $170.76 per square foot.
Net Absorption
Demand for industrial space continued in the third quarter and was evident in the increased activity and absorption. The 685,587 square feet of net absorption witnessed this quarter was a result of the 551,309 square feet posted by the manufacturing and warehouse segment, coupled with the 134,278 square feet absorbed in the research and development market sector.
The majority of this absorption occurred in the North Orange County manufacturing and warehouse market which experienced a positive 389,795 square feet, and was mainly due to Sasco Electric taking occupancy at 2750 Moore Ave. in Fullerton. West Orange County also had a significant amount of absorption of 299,672 square feet, mainly the result of B. Braun Medical which leased 258,506 square feet in Westminster. At the Pacific Gateway Business Center, two buildings were sold to users which resulted in 164,127 square feet of absorbed space.
Vacancy and Availability
Record-low availability and vacancy rates continue to be a theme in the market. The region’s availability rate ticked up slightly from the second quarter to 5.6%. This increase was primarily due to rise in the research and development availability rate from 5.4% to 6.5%, which was the result of more than 300,000 square feet coming onto the market in Mission Viejo.
The manufacturing and warehouse sector, however, experienced a minimal bump
to 5.4% from 5.3% due to new available space in the airport and South Orange
County submarkets.
The overall vacancy level for both industrial sectors decreased from 3.1% to 2.9% this quarter. The manufacturing and warehouse segment also holds a declined vacancy rate of 2.9%, while the research and development market has a rate of 2.7%. Of the submarkets, West Orange County holds the highest rate of 5.4%, which is down from the second quarter’s rate of 6%. Conversely, North Orange County possesses one of the lowest rates of 1.7%, declining from 2%.
Average Asking Rates
Asking rents continue to rise for industrial space. As it stands, the average asking lease rate is 77 cents per square foot. Also increasing, research and development now stands at $1.02 per square foot.
The South Orange County submarket witnessed the most significant year-over rent increase of 15 cents to $1.10 per square foot, due to its amount of research and development space. The West Orange County submarket added a penny to its 68 cent asking rent in the third quarter, while the airport area decreased one cent to 83 cents per square foot. North Orange County saw an overall gain of three cents this quarter to 63 cents.
Average asking sale prices also experienced an increase in the third quarter at an average of $171 per square foot. The manufacturing and warehouse sector contributed to this rise and now stands at $166 per square foot, whereas research and development properties stay at $196 per square foot.
Construction
Six properties completed construction this quarter totaling 102,671 square feet. Two of the buildings are located in Anaheim and add another 35,476 square feet to the North Anaheim Industrial Park. In La Habra, two properties in the Harbor Commerce Center also completed construction totaling 24,474 square feet. The city of Garden Grove added one 16,407-square-foot warehouse. One new research and development building completed construction in the Irvine Spectrum totaling 26,314 square feet.
Fullerton’s Valencia Business Center remains in the development phase with 10 buildings more than 10,000 square feet under construction which add up to 118,080 square feet. In the airport area, two research and development buildings are still under construction and will add another 52,984 square feet to the city of Irvine.
In the South Orange County submarket, two additional research and development buildings are being built,one in the Irvine Spectrum totaling 22,397 square feet, the other in San Clemente at 62,780 square feet.
Analysis by CB Richard Ellis Group Inc.
