Real Estate Watch: Manufacturing & Warehouse
Manufacturing and Warehouse Activity Dwindles
By GARRETT CARTER
Lease and sale activity in Orange County’s manufacturing and warehouse market weakened dramatically in the fourth quarter.
After a strong third quarter, gross activity was slightly less than 2 million square feet in the fourth quarter.
Several factors contributed to the quarter’s slow pace.
The county’s industrial sector lost 5,600 jobs in the quarter, reducing the demand for manufacturing and warehouse space. Other negative factors included local and national economic concerns, the dockworkers dispute in the fall and a shaky geopolitical situation.
Total vacancy in manufacturing and warehouse space increased to 7.15 million square feet at the end of the fourth quarter. The vacancy rate rose 40 basis points to 3.6% in the fourth quarter vs. the prior quarter, but in line with the fourth quarter in 2001.
Meanwhile, overall lease rates for manufacturing and warehouse space have remained stable in the past 12 months.
With the slowdown in activity, about 85% of sale and lease deals were for space smaller than 30,000 square feet.
Low interest rates coupled with reduced new construction has made buying an attractive alternative to leasing, particularly in smaller, owner-occupied properties.
Sale deals accounted for almost 40% of total gross activity in the market in the fourth quarter vs. 25% in the year-ago quarter.
The most negative absorption,728,000 square feet,was felt in North County. Gross activity in North County fell 57% to 990,000 in the quarter. New construction in the county declined 14% to 674,000 square feet.
Low vacancy rates have caused lease rates to remain relatively unchanged in the past 12 months, even as gross activity has declined dramatically.
A limited supply of buildings for sale and historically low interest rates have caused big increases in building sale prices. Building sale demand will continue to outpace supply in all sizes less than 50,000 square feet.
Carter is a vice president in CB Richard Ellis’ Southern California Manufacturing Facilities Group.
