Orange County’s industrial real estate market had a positive third quarter after a slow second quarter.
This is welcome news to investors who had seen sale prices rise 14% in the past year, with lease rates up 3% during the same period.
A 10% decline in the availability rate to 6.4%, versus a year ago, pushed the average asking lease rate up to 61 cents per square foot.
The county has more than 1 million square feet of industrial space under construction.
The new industrial space is expected to be moderately absorbed into the market and should have a minimal effect on overall availability levels.
The industrial sector has been active with the inventory of industrial buildings growing by 30,000 square feet and lease and sales activity jumping by 30% from the second quarter.
Sale prices on industrial buildings increased 4.3% to $125.32 per square foot in the third quarter.
The vacany rate declined 10% to 3.6% on 876,489 square feet of positive net absorption. OC still stands to benefit from greater availability rates than neighboring Southern California counties.
With 3.6 million square feet of gross activity in the third quarter, the industrial market has posted a total of 9.7 million square feet of total activity this year.
The manufacturing and warehouse sector accounted for 83% of all activity in the quarter. Activity among buildings in the 10,000- to 29,999-square-foot range was the highest with 54 buildings totaling about 800,000 square feet.
The county’s research and development sector posted 618,148 square feet of activity, with the majority continuing to be in South County, which had 456,675 square feet of sale and lease activity.
Net Absorption
OC’s industrial market ended the third quarter with 876,489 square feet of positive absorption.
That’s a big increase from the negative 581,254 square feet posted during the previous quarter.
All OC submarkets enjoyed an increase in net absorption.
The manufacturing and warehouse sector saw an impressive positive net absorption of 628,481 square feet in the period, with the research and development sector posting 248,008 square feet of positive net absorption.
North County and the John Wayne Airport area saw negative R & D; net absorption of 92,852 square feet and 17,954 square feet, respectively.
West County was the only region to post negative net absorption in the manufacturing and warehouse sector.
Vacancy
As a result of the increased gross activity recorded by OC’s industrial market in the third quarter, both the vacancy and availability rates decreased.
The vacancy rate at the end of the third quarter was 3.6%, down from 4% in the previous quarter. This amounts to 8.9 million square feet of vacant space in an industrial base of nearly 250 million square feet.
The availability rate was 6.4% in the third quarter, down from 7% last quarter.
The R & D; sector saw a big decrease in vacancy and availability, ending the third quarter at 5% and 8.4%, respectively.
The positive vacancy and availability rates suggest a strong, competitive industrial market.
Lease Rates
The average asking lease rate at the end of the third quarter was 61 cents per square foot, down 2 cents from the previous quarter.
The manufacturing and warehouse sector recorded a 2-cent increase to end the quarter at 56 cents per square foot. The R & D; sector’s overall lease rate increased by 5 cents to 81 cents per square foot in the period.
North County and South County saw the highest lease rate increase from the previous quarter,up 4 cents each. Rental rates in the John Wayne Airport area rate increased 1 cent to 58 cents per square foot. West County was the only region in OC that had a decrease,down 3 cents to 65 cents per square foot.
Construction
With 20 buildings totaling 1 million square feet under construction in the third quarter, OC continued to be a lucrative market for developers and investors.
The manufacturing and warehouse sector accounted for about 72% of new construction in the period, with R & D; representing the rest.
About 41% of total new construction was started in West County, followed by 31% in North County, 18% in the John Wayne Airport area and 19% in South County.
Since the third quarter of 2004, the amount of construction is up 36%,an indication of solid demand for industrial space here. The fourth quarter is expected to see several completed projects.
Analysis provided by CB Richard Ellis Group Inc.’s Information Management Department.
