At the end of 2006, the Orange County industrial market continued to have low levels of available space and tight vacancy rates.
Activity among manufacturing and warehouse and research and development did slow in the fourth quarter, yet remains equivalent to the activity seen in the first part of 2006. Nearly 2.7 million square feet of gross sales and lease activity was recorded in the fourth quarter, bringing the year-to-date total to more than 13.1 million square feet.
Following a decline in the third quarter, leasing activity regained its momentum producing nearly 2.3 million square feet. Representing 80% of the total OC industrial market, the manufacturing and warehouse sector generated the majority of the total at 2.1 million square feet, while 534,738 square feet of lease and sales activity occurred in the research and development sector.
Despite continued strong levels of activity, there was 427,875 square feet of negative net absorption. This mainly was due to vacant space that came onto the market in the fourth quarter, particularly in the West County submarket. However, vacancy levels edged up slightly to 2.8% as did the overall availability rate, which stands at 5.1% from 4.8%.
Demand for space is ongoing, and OC is adapting with redevelopment, which maintains its growth at steady levels. In the fourth quarter, nearly 1 million square feet completed the construction phase and was added to the market.
About 303,000 square feet broke ground this quarter. As it stands, there is more than 569,000 square feet under construction. Construction is down 33% from a year ago, yet 1.2 million square feet of product is planned for the next two years.
Average asking rents held steady at 70 cents per square foot after a dramatic 7 cents climb in the third quarter. This combined lease rate is attributed to the average asking research and development rate of 95 cents, which is down 4 cents from the previous quarter, as well as the manufacturing and warehouse rental rate of 64 cents per square foot.
Sale prices continue to rise across the county and currently stand at $166.94 per square foot.
Net Absorption
Despite healthy levels of gross activity, the overall OC industrial market saw absorption go negative in the fourth quarter.
The negative 427,875 square feet of net absorption in the quarter was a result of the minimal 20,721 negative square feet posted by the research and development segment, coupled with the negative 407,154 square feet in the manufacturing and warehouse sector.
Together, the airport area and North County positively absorbed more than 446,000 square feet, which was mainly concentrated in Anaheim, Orange, Fountain Valley and Santa Ana.
South and West counties saw negative absorption largely due to manufacturing and warehouse vacant space coming onto the market.
Vacancy and Availability
Despite a minimal increase, OC’s industrial market continues to see record-low availability and vacancy rates.
The region’s availability rate increased to 5.1% in the fourth quarter from 4.8% in the third quarter.
The manufacturing and warehouse sector follows closely with an availability rate of 5%, while the research and development market also rose slightly to 5.8%.
Of the submarkets, West County holds the highest rate at 8.3%,the same rate at the start of 2006. Meanwhile, North County has one of the lowest rates at 4.2%, an 11% year-over decline.
In the fourth quarter, vacancy levels inched up slightly to 2.8%. The vacancy rate for manufacturing and warehouse space still remains below 3%, while vacancy for research and development held steady at 2.8%. This rise of the manufacturing and warehouse vacancy level can be attributed to the completion and delivery of seven buildings in Seal Beach’s Pacific Gateway Business Center, adding to the total vacancy square feet for West County.
Asking Lease Rates
Following a spike in the third quarter, the average asking lease rate remains unchanged at 70 cents per square foot in the fourth quarter.
Rents in the manufacturing and warehouse sector rose 1 cent to 64 cents per square foot. That’s a 12% increase from the 57 cent rate posted a year ago.
Research and development space saw a 3 cent decline to 95 cents from the third quarter’s 98 cents per square foot.
With the exception of the airport area, which held at 92 cents per square foot, overall research and development rents dipped across the board, averaging an 8 cent decrease in the North, West and South areas of the county. Average asking sale prices continue to grow, increasing by 3% to $166.94 per square foot.
The manufacturing and warehouse sector rose over $3 per square foot to $156.55, whereas research and development saw a $26 gain, falling just over the $225 per square foot mark.
Construction
There were 20 buildings totaling 569,459 square feet under construction at the end of 2006. The manufacturing and warehouse sector accounts for about 61% of construction with 12 buildings in the construction phase, while the research and development sector represents the remaining 39% with eight buildings being built.
West and South counties account for the majority of this construction with both submarkets having more than 220,000 square feet being developed.
West County saw more than 1 million square feet complete construction, a total of 13 buildings. Also, the airport area and South County both added more than 150,000 square feet to the market, with 34,916 square feet completed in North County.
