By Brian DeRevere
Purely on an activity basis, the first quarter somewhat mirrored the national economy in that there was modest growth and/or activity in Orange County’s market for manufacturing and warehouse space.
This is not to say the four industrial submarkets that make up OC had poor performance. Although historical vacancy rates remain low, and asking lease and class A sale prices continue to escalate, there was some level of caution by industrial users.
Some of this caution can be attributed to plain sticker shock as lease rates were up 19% from a year earlier. Sale prices, depending on the submarket, were up about 20%.
Statistically speaking, there was about 725,000 square feet of negative net absorption in the first quarter, based predominately on new space in West Orange County and some larger, second generation buildings coming to market in the John Wayne Airport area.
North Orange County and South Orange County both saw positive net absorption for the quarter.
On the vacancy rate side, the overall rate for the county rose from 3% at the end of 2006 to 3.4% at the end of the first quarter.
Vacancy rates in the south and north parts of the county actually dropped during this period. Vacancy in the airport area and West County increased by more than a full percentage point during the same period.
In all four submarkets, the vast majority of construction is of buildings less than 10,000 square feet. Demand remains relatively strong, though buying by business owners has dropped somewhat from 2005 and 2006.
The recent rise in 10-year Treasuries has had an emotional and real impact on some users and will ultimately affect demand and sale price increases.
General lease and sale activity from 10,000 to 50,000 square feet remains strong. In certain submarkets, there is extremely tight availability.
Activity in buildings larger than 50,000 square feet was somewhat slow from the fourth quarter through the first quarter, understanding historical vacancy rates are still extremely low in these size ranges.
We are starting to see more large users in the marketplace (100,000 square feet and above) as we move toward the summer months.
There should be solid gains in lease rates and sale prices in OC, though at a lower relative pace than what was seen in the past couple of years.
Both exchange and institutional investment activity is strong across all industrial sectors and is forecasted to remain so throughout 2007. The market should be considered healthy and somewhat balanced on a supply and demand basis.
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.
