Industrial Market
Vacancy Rates Rise As Job Cuts, Strikes Slow Recovery Pace
Analysis provided by CB Richard Ellis’ Global Research and Consulting
Job cuts and strikes at coastal ports slowed the pace of recovery in the industrial real estate market last year.
Vacancy Rates
While the availability rate for industrial space fell sequentially to 7.6% in the fourth quarter,the same level as the fourth quarter a year earlier,the vacancy rate for industrial space rose 30 basis points to 4.2%.
Sublease space played a big role in availability and vacancy market trends last year, particularly in the northern half of the county.
Sublease space accounted for 18% of total availability in Orange County in the fourth quarter. Roughly 25% of the total available space in North County and West County was sublease space.
Absorption
Gross activity settled down in the fourth quarter to 2.3 million square feet vs. 4.3 million square feet last quarter when several large tenant deals dominated the market.
The decreased activity, coupled with the continued decline in manufacturing employment, turned net absorption around again in the fourth quarter to a negative 789,838 square feet. As the case has been throughout this year,with the exception of the third quarter,most sale and lease deals were for space smaller than 30,000 square feet.
The manufacturing and warehouse sector was responsible for most of the activity decline, particularly in North County, which suffered negative absorption of 728,201 square feet.
Lease Rates
The average asking lease rate for industrial space has inversely reflected the availability rate trend in the past year.
Where availability rose in the first two quarters of 2002, the average asking lease rate fell. Then, when availability started to tighten again, average asking lease rates rose to end the year at 61 cents per square foot, the same lease rate seen in the fourth quarter a year earlier.
Fourth-quarter sale prices rose 3% to $94.19 per square foot vs. a year ago.
South County continued to lead the market with an average asking rent of 74 cents per square foot per month,21% higher than the county average. The average asking sale price in South County was $123.37 per square foot, a premium of 31% vs. OC’s average.
Construction
Industrial construction slowed last year. Thirty-three buildings with 1.2 million square feet were finished last year, just under half of the construction completed in 2001.
Sixty-one percent of last year’s construction activity was for buildings smaller than 30,000 square feet.
Eight buildings with a total of 170,583 square feet were finished in the fourth quarter. The largest was 33,742 square feet.
No new construction started during the quarter. There was 673,837 square feet of industrial construction under way at the end of the quarter.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
