By BRIAN DeREVERE
At the end of 2006 the manufacturing and warehouse sector in Orange County continued to show two common themes:
1. Rising rents and sale prices.
2. Historically low vacancy rates.
Average asking lease rates from the fourth quarter of 2005 to fourth quarter of last year were up 12.3%. Vacancy rates trended lower. In the fourth quarter, vacancy ended at 2.9%, down 3.3% from one year ago.
The vacancy rate rose 11% from the third quarter due in part to construction finishing in the west Orange County submarket.
The north and south Orange County submarkets had the lowest vacancy rates at 2.1%.
Gross activity in leasing and sales for the quarter was 2.6 million square feet, though there was about 400,000 square feet of negative net absorption due to construction completions and a limited amount of sublease space coming back to the market.
With a generally tight supply of class A manufacturing and warehouse space across OC, upward pressure on lease rates and sale prices should continue during the first half of 2007. Building purchases by businesses is outstripping leasing demand by about 2-to-1.
Leasing has been reasonably strong. But there haven’t been any leases in the past 90 to 120 days. Given solid market dynamics and general economy, there is a certain level of caution in the current leasing market.
A continuing trend in the manufacturing sector is demand for smaller facilities that provide a greater level of functionality (power, clear height, loading, etc.) versus traditional older manufacturing buildings. Today’s manufacturers tend to be grouped in facilities 50,000 square feet and less and are focused on light manufacturing, assembly and support or finish manufacturing of goods often delivered through the ports. The light manufacturing user is where the bulk of building buying continues to occur. There appears to be unsatisfied demand in that sector.
The significant driving force of industrial activity in Southern California is goods coming through the ports of Long Beach and Los Angeles. Combined, the neighboring ports would be the world’s fifth busiest after Singapore, Hong Kong, Shanghai and Shenzhen, China.
In 2006, the Southland ports moved 14.2 million containers into Southern California’s industrial market. The combined ports could see an average 10% to 12% increase from the prior year. And, as imports grow, so will occupancy levels and demand for warehouse space.
The supply chain doesn’t like uncertainty. Local as well as global events in the past few years have created a need to warehouse greater inventories. Any type of supply chain interruption tends to increase occupancy levels and lease rates and this can be affected by macro global events, or local issues such as a longshoreman strike or a local green initiative to clean up the environment within the ports.
Historically solid demand, low vacancies, a diminishing industrial base (due to office, retail and residential conversion), along with a constrained supply of land, will continue to foster low vacancies and increasing rates. That should add value to well located and functional manufacturing facilities and class A distribution buildings across the county.
DeRevere is a senior vice president in the Anaheim office of CB Richard Ellis Group Inc.
The Real Estate Watch Chart – Net Absorption, Rates, etc. is provided in a Adobe Reader .pdf print-friendly file.
CLICK HERE
to download
REAL ESTATE WATCH CHARTS
Please note: to download the file, you will need Adobe Acrobat Reader installed on your computer. For a free copy of the software,
click here.
