By IAN BRITTON
A strong economy and increased activity at Southland ports has resulted in five consecutive quarters of booming industrial activity in Orange County and the tightest vacancy rate in the past five years at 3.5%.
North Orange County, which makes up nearly 50% of the county’s manufacturing and warehouse market, is seeing a decline in the number of larger buildings available for lease.
Multiple bids are being offered on the few industrial buildings available for lease, sending average asking lease rates up 3 cents per square foot in the first quarter.
Industrial rents for the county now average 58 cents per square foot per month, triple net. Future rent increases are on their way as demand peaks in the summer when distributors received larger shipments ahead of the winter holiday shopping rush.
OC doesn’t have the available land to support the development of larger warehouse buildings. With land prices higher than $25 per square foot on a few infill parcels, industrial rents can’t support speculative projects for lease.
With a finite supply of quality buildings and increasing demand on the tenant side, rents will continue to move up quickly.
Just when owners feel sale prices may have reached their peak, asking prices rose 18.2% in the first quarter compared to a year ago. Average sale prices for buildings larger than 10,000 square feet now are a staggering $121 per square foot.
Pension funds, real estate investment trusts and private investors continue to view real estate as a great alternative for investment funds. As the Dow and Nasdaq continue to meander, investors are pulling money out of stocks in favor of real estate.
Competition and demand to control industrial real estate is even stronger than it was last year.
As the leasing market improves, investors are getting more aggressive, with many funds more than doubling their real estate allocations. Sale prices are increasing substantially as cap rates on industrial buildings hover near 6%.
Industrial buildings in the 10,000- to 20,000-square-foot range saw the most activity in the first quarter. Owners-users continue to target this building size and inventory is approaching a historic low. Many buyers are forced to make unsolicited offers on buildings.
Sellers are seeing asking prices in the $135- to $140-per-square-foot range as interest rates remain low.
Britton is a senior associate in the Anaheim office of CB Richard Ellis Group Inc.
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