Real Estate Watch: Manufacturing and Warehouse
Manufacturing Weakens; Warehousing Flat
By GARRETT CARTER
Following two years of explosive growth, manufacturing and warehousing leasing and sale activity slowed significantly in Orange County in 2001 as the economy took a tumble. Net absorption was negative for the year to the tune of 4,500,000 feet, with almost 60% of the negative net absorption occurring in the fourth quarter.
The vacancy rate in the M & W; sector ended the year at 3.6%, up 347%. The hardest hit area was South County, where the vacancy rate rose from 2.2% to just less than 6%. Although vacancy increased during the year, lease rates remained stable to only slightly down.
The warehousing sector activity was flat during most of the year. However, lease rates remained stable as large blocks of warehouse distribution space were difficult to find. Warehousing space availability in Orange County will remain tight through the next three quarters. Lease rates should remain flat to slightly higher during this time.
The most significant change in the Orange County market was in the manufacturing sector. Vacant square footage available increased from 1.9 million square feet to 6.5 million square feet in just more than 12 months (to a 3.6% vacancy rate). This decline in the occupancy of manufacturing space mirrors the decline in manufacturing capacity utilization throughout the United States. Manufacturing capacity utilization has been declining for 30 months to its lowest levels since 1981 (now at 75%).
Continued low levels of manufacturing capacity utilization and implementation of newer manufacturing technologies will add pressure to dispose of older manufacturing space. We see continued weakness in this sector. This continued weakness will result in increased availability and vacancy, and lower asking lease rates and sale prices.
Although the increasing available manufacturing space will be absorbed, it may be repositioned and redeveloped for alternative uses including warehouse distribution, service tech, and even retail.
Overall, the manufacturing and warehousing sector of the Orange County industrial market remains strong. Availability is low, asking rates remain stable and the outlook for slow sustainable growth in the sector is good.
Garrett Carter is vice president of the CB Richard Ellis Manufacturing Facilities Group Southern California from the Anaheim office.
