Following the rest of the real estate market in OC, the research and development market showed signs of a cooling trend in the first quarter after the record-high activity and declining vacancy rates seen in 2000. However, the R & D; market here remained tight with vacancy rates 25% lower than at the beginning of 2000.
Demand in the R & D; market is still evident with a vacancy rate of just 3.2% as of March. There are few bigger buildings or spaces coming on the market to meet the demand. Of the 26 new spaces that began marketing availability in the first quarter, only two were larger than 50,000 square feet. In the Airport Area and South Orange County, where vacancy was tightest at just 2.4%, the majority of available spaces were smaller than 50,000 square feet.
New construction also reflects these size constraints. Two new R & D; projects were completed in the first quarter, one totaling 66,000 square feet and the other less than 30,000 square feet. Another five R & D; properties were under development in West and South Orange County, totaling just 117,000 square feet, with the buildings ranging from approximately 19,000 square feet to 32,000 square feet.
These numbers reflect a tightening of construction activity, although the vacancy rate for R & D; space lingers well below 5%. This is because the dwindling supply of buildable, entitled land finally is catching up to the R & D; market.
The issue of buildable land has plagued Orange County for the past several years, but R & D; construction met the strong demand from 1997 through 2000 through development of 1.6 million square feet. As land prices rose,they’ve doubled since 1995,developers were forced to abandon traditional industrial projects in favor of potential higher returns generated by low-rise office and flex product.
The South Orange County R & D; market has grown the fastest over the past five years, putting up 80% of the total R & D; construction in the county.
Analysis provided by CB Richard Ellis’ Global Research and Consulting.
