Industrial Market Loosens a Bit but Remains Tight
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
Activity in the industrial real estate market continued to drop throughout the third quarter, yet West Orange County has remained one of the tightest industrial markets, with a vacancy rate of less than 2%. Deals in smaller spaces have maintained activity, butt leases on larger spaces have dropped considerably since 2000, bringing the overall industrial third quarter net absorption figure to a negative 68,179 square feet. Only two leases for more than 50,000 square feet were executed in the West Orange County market during the third quarter, both in Cypress. One manufacturing-and-warehouse lease, totaling approximately 112,000 square feet, kept the net absorption for M & W; space positive in the third quarter, and dropped the vacancy rate for that area to 0.7%.
The 95,535-square-foot lease executed in the research-and-development sector was significant, but unable to cover the R & D; spaces that came back on the market in the third quarter, 84,834 square feet of which was new construction, vacant upon completion. As a result, the net absorption for R & D; space in West Orange County dropped to a negative 135,479 square feet.
In an effort to retain or attract net tenants in the slowing market, landlords began lowering asking rents on industrial space. As a result, the average asking lease rate for M & W; space dropped 1 cent to 54 cents per square foot per month, and the R & D; rate dropped 7 cents to 77 cents per square foot per month. Although the overall average asking rent for industrial space (M & W; and R & D; combined) dropped 6% in the third quarter, the 58 cents average asking price remained nearly 2% higher than the rate in the third quarter of 2000.
Construction activity tapered to 383,175 square feet in the third quarter. As four new R & D; buildings in Huntington Beach totaling 84,834 square feet completed construction in the third quarter, only one new R & D; building broke ground in Cypress adding 64,904 square feet to the construction activity. One 17,200-square-foot M & W; building completed construction in Garden Grove, however no new M & W; construction started in West Orange County during the third quarter.
