By IAN BRITTON
The market fundamentals for Orange County’s manufacturing and warehouse sector remain strong as average asking lease rates have increased 10 cents a square foot, or 15% from a year ago, to 69 cents per square foot. The average vacancy rate across all submarkets is a low 3.2%.
Tenant demand continues to be strong across all industrial submarkets in OC, but the speed of the leasing market seemed to temper slightly in the second and third quarters. The lack of tenant activity may be a result of the limited supply of quality buildings and the “sticker shock” tenants are experiencing as lease rates continue to rise.
Despite the turmoil in the financial markets, investors continue to target OC’s industrial sector and view it as one of the most desirable markets in the county for long-term investment due to its attractive location, diverse tenant base, skilled labor pool and sound infrastructure.
OC’s industrial base continues to shrink as the limited number of larger land parcels in South County and the airport area are being re-zoned for housing and office development. Industrial development is limited and most of the infill parcels are four to 10 acres. South County has one 12-acre project under construction near Bake Parkway, featuring buildings from 3,000 square feet to 6,000 square feet. North County has four projects under construction,two in Fullerton and two in Brea. A majority of the construction is from 3,000 square feet to 13,000 square feet, with prices ranging from $185 per square foot to $250 per square foot.
West County is home to Pacific Gateway Business Center in Seal Beach featuring 10 larger buildings on 44 acres. Sizes are 45,000 square feet to 184,000 square feet. Three buildings have sold since the first quarter for $152 per square foot to $180 per square foot.
Tenants and user buyers continue to target quality class A buildings and the few buildings that actually make it to the market are absorbed very quickly. Average sale prices for buildings greater than 10,000 square feet range from $150 per square foot to $225 per square foot depending on location.
CB Richard Ellis’ Torto Wheaton Research projects industrial employment to grow by 9,900 jobs during the remainder of 2007 through 2008 and projects rents to grow at 4.5% during the same period. Tenants who have been waiting to make a move are finally coming off the sidelines and are beginning to understand that aggressive concessions are simply not available in today’s tight market. Expect gross activity to increase substantially in the fourth quarter.
Britton is a first vice president in the Anaheim office of CB Richard Ellis Group Inc.
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