Real Estate Watch: Manufacturing and Warehouse
Signs of Recovery in Manufacturing and Warehouse Sector
By GARRETT CARTER
Leasing and sales of manufacturing and warehouse space in the March quarter fell 5.3% to 2.7 million feet from the December quarter. The weakest market continued to be North County, with gross activity down 35% from the December quarter and negative absorption of 485,000 feet. The county overall had negative absorption of 397,000 feet.
Available manufacturing and warehouse space rose slightly to 14.5 million square feet, with more than half the available square feet vacant at the end of March. Actual vacant manufacturing and warehouse space in Orange County increased by 150% to 7.6 million feet, compared to the March quarter last year. The total availability rate increased 3.8% in the first quarter from the fourth quarter.
Activity in the warehouse sector remained slow in the first quarter. Lease rates were stable as large blocks of warehouse distribution space remain difficult to find. Construction activity had a big decline to 639,000 square feet under construction during the first quarter. Increasing sublease availability (more than 32% of total warehouse space available) indicates available class A warehouse lease rates should remain flat to slightly lower during the balance of the year.
North County manufacturing vacancy increased to 3.1 million square feet in the first quarter, up from 730,000 square feet in March 2001. Available space in North County was 6.6 million square feet with the manufacturing and warehouse availability rate at 7%. Availability in the county increased to 7.3%, the highest rate in the last four years.
Average asking lease rates, which declined only slightly last year, dropped an average of 5% during the first quarter to 54 cents. Class A building rates remain firm. Class B and C space is being marketed with much lower asking rates and more concessions, such as free rent or early occupancy. With vacancy up 5.6% from last quarter and 153% from a year ago, class B and C rates should remain weak this year.
One bright spot nationally is steadying manufacturing capacity utilization. Capacity utilization has risen in each of the first four months this year and was 75.5% at the end of April. Stabilization in the manufacturing capacity utilization rate follows a two-year decline to the lowest levels in 20 years and represents a loss of more than 125,000 manufacturing jobs in California.
A return to growth in the manufacturing capacity utilization rate and perhaps even manufacturing job growth is a signal that OC is reaching the end of the manufacturing and warehousing market slowdown.
Carter is a vice president in CB Richard Ellis’ Southern California Manufacturing Facilities Group.
