By Larry Schuler
I was surrounded by several industry colleagues recently and heard one of them make the analogy that the current market is like the “Fight Night” event that NAIOP sponsors, with the landlords being the prize fighters struggling for every deal (even the renewals).
While this analogy may ring more true for the office market, the Orange County industrial market of manufacturing and warehouse buildings has certainly been hit hard during the first quarter.
The county gave back a staggering 1.37 million square feet (in negative absorption) in the first quarter. Every submarket contributed to that figure with the exception of South County, which managed to squeak out 72,500 square feet of absorption.
The county’s vacancy rate, which stands at 4.7%, continues to rise, representing a 14.6% increase from the previous quarter and a hefty 62.1% jump from the same period a year earlier.
With these substantial increases, landlords have lowered their expectations on rent, as evidenced by a decrease of about 15% in asking rents during the past 12 months.
In addition, landlord concessions have become more prominent in the terms and conditions tenants are realizing in today’s marketplace.
In an effort to finish up on a positive note, there are deals being completed out there (albeit fewer than during the boom times). Contract Carpet purchased 27,000 square feet in Fullerton, while Acco Engineered Systems purchased 35,000 square feet in Costa Mesa.
Additionally, a 25,000-square-foot industrial property was purchased in Irvine.
On the leasing side, Kusha leased 38,400 square feet in Irvine, Jack in the Box Inc. recently leased 159,036 square feet in Buena Park and IHOI Inc. leased 155,805 square feet in Irvine.
We can only hope that the market stabilizes, consumer confidence returns with a passion and new job creation becomes the headline. Then we can talk about positive absorption countywide.
Schuler is a first vice president in the Newport Beach office of CB Richard Ellis Group Inc.
