Real Estate Watch: Manufacturing and Warehouse
Strong Manufacturing and Warehouse Activity in Q3
By GARRETT CARTER
Two large lease deals at Buena Park’s CommerceCentre led an increase in lease and sale activity in the manufacturing and warehouse sector in the third quarter.
Gross activity in the quarter was more than 3.7 million square feet, including the two deals in Buena Park for a total of about 800,000 square feet.
Net absorption in the quarter increased dramatically to almost 1.2 million square feet. Year-to-date net absorption is a positive 550,000 square feet.
Availability and total vacant square feet declined by 1.2 million square feet during the third quarter. The vacancy rate fell to 3.3%.
The continued high availability of sublease space may have a major negative impact on future asking lease rates. Average asking rates changed slightly from the second quarter to 54 cents per square foot and are down four cents from a year ago.
Manufacturing and warehouse construction activity saw a slight increase to 780,000 square feet in the quarter, led by the groundbreaking of the final phases of the Brea Business Park that will bring about 400,000 square feet to market. Construction on four buildings with a total of 128,000 square feet was completed in the quarter.
If activity continues as it has in the past several months, owners and tenants should expect a continuing recovery in the manufacturing and warehouse market, characterized by larger occupants coming back, albeit very slowly, and continued strong demand for smaller buildings.
Supply should level off. Demand will continue to outpace supply for buildings smaller than 50,000 square feet. Activity on larger buildings is expected to pick up in the coming months.
Lease rates should remain flat for the foreseeable future, but owner-user demand driven by historic low interest rates and limited availability will continue to drive prices higher for both owner-occupied and net-leased-investment sales.
At about 75%, manufacturing capacity utilization is at historic low levels. Continued consolidation of manufacturing capacity will impact job growth and occupancy at older manufacturing space in Orange County.
Overall, OC’s manufacturing and warehouse market has been resilient and shows continued signs of recovery and growth.
Carter is a vice president in CB Richard Ellis’ Southern California Manufacturing Facilities Group.
