The Orange County industrial market continued to demonstrate its stability into the first quarter. Vacancy and availability levels remained in the single digits, lease and sale activity maintained a healthy pace.
Activity among manufacturing and warehouse and research and development slowed in the first quarter, yet remained equivalent to the activity seen in the beginning of last year. The demand for space is ongoing, and OC is adapting in means of redevelopment, which maintains its growth at steady levels. There was nearly 350,000 square feet under construction in the first quarter. A year earlier, there was 28% more space in the construction phase.
More than 2.3 million square feet of activity was recorded in the quarter, minimally less than the activity recorded in the first quarter of last year.
Leasing accounted for 82% of the total activity, with 1.9 million square feet. User sales,sales to business owners who occupy the buildings,increased with 423,360 square feet. The M & W; sector, representing 83% of the total OC industrial market, generated the majority of the activity with 2 million square feet. The R & D; market saw a decline in activity, which posted 324,324 square feet of gross leases and sales.
Despite the constant levels of activity, 940,800 square feet of negative net absorption occurred. This was mainly due to new construction completed, which brought vacant space to the market in the first quarter. This was particularly true in the West County and airport area submarkets.
Vacancy levels, however, edged up slightly to 3.4% as did the overall availability rate which stands at 5.4%.
Net Absorption
Despite healthy levels of gross activity, the overall OC industrial market saw negatively absorbed space in the first quarter. The negative 940,800 square feet of net absorption in the first quarter was a result of the 723,478 negative square feet posted by the M & W; sector, coupled with the negative 217,322 square feet, which occurred in the R & D; market.
North County positively absorbed more than 244,000 square feet, which was mainly concentrated in Buena Park and Fullerton.
The airport area endured the majority of the negative absorption due to a 36% rise of vacant space coming onto the market, specifically in Fountain Valley and Santa Ana.
Vacancy & Availability
The region’s availability rate increased slightly to 5.4% from 5.1% in the fourth quarter.
The M & W; sector followed closely with an availability rate of 5.3%, while the R & D; market’s rate ticked up to 5.9%.
Of the submarkets, West County held the highest rate of 9.8%, up from the fourth quarter’s rate of 8.5%. Conversely, North County possessed one of the lowest rates at 3.7%, representing a 20% decline, year-over-year.
In the first quarter, overall vacancy levels inched up slightly to 3.4%. Both M & W; and R & D; space held a vacancy rate of 3.4%. This rise in the M & W; vacancy level can be attributed to increased vacant space coming on the market, specifically in the West County and airport area submarkets. The airport area also experienced a vacancy rise in the R & D; sector, increasing to 3%.
Asking Rents
Following an unchanged rate in the fourth quarter, the average asking lease rate gained 3 cents, putting the rate now at 73 cents per square foot. Rents in the M & W; sector rose four cents to 68 cents per square foot, a 19% increase over the 57 cent lease rate seen a year ago.
The R & D; segment also saw a 3 cent climb to 98 cents in the first quarter, compared to 95 cents per square foot in the fourth quarter.
Overall, the airport area saw the most significant increase. The submarket’s rent rose 6 cents to 82 cents per square foot, followed by South County, which increased 3 cents to 95 cents per square foot. West County’s rents rose 1 cent to 65 cents, while the average rent in North County declined 1 cent to 59 cents per square foot.
Average asking sale prices held steady in the first quarter at an average of $166 per square foot. The M & W; sector also held at $156 per square foot. R & D; space dropped to fall just over the $205 per square foot mark.
Construction
There are currently nine buildings totaling 346,589 square feet under construction at the start of this year.
The M & W; sector accounted for approximately 82% of construction with eight buildings in the construction phase, while the R & D; sector represented the remaining 18% with one property being constructed.
