Real Estate Watch: Manufacturing & Warehouse
Manufacturing and Warehouse Activity Slows
By GARRETT CARTER
Lease and sale activity in Orange County’s manufacturing and warehouse market was sluggish in the first quarter.
Gross activity declined slightly to 1.94 million square feet.
Several factors contributed to the quarter’s slow pace, including the weak economy and geopolitical instability.
Meanwhile, the county posted a 5% decline in manufacturing and warehouse jobs in the first quarter versus a year earlier.
Total vacancy for manufacturing and warehouse space moved dramatically higher in the first quarter to 8.45 million square feet. The vacancy rate is up 50 basis points in the past 12 months and 30 basis points in the first quarter alone.
Asking lease rates declined by 6% in the first quarter. The decline,the first in more than a year,was the result of soft demand and higher availability of sublet space. Increased availability will put continued downward pressure on lease rates.
More than 90% of the county’s sale and lease deals were for space smaller than 50,000 square feet.
New construction activity rose slightly during the quarter to 784,000 square feet. Eighty percent of new construction was warehouse space in North County.
Most negative absorption,555,000 square feet,was in North County. Gross activity in North County fell to 845,000 square feet.
Gross activity in the rest of the county was flat at 1 million square feet.
Small-building sales were once again the most active segment in the manufacturing and warehouse market.
Historical low costs of financing and availability of mortgage capital are creating high demand for small-building buys. With only a limited supply available, prices per square foot are hitting record highs in the region.
The outlook for the balance of the year is cloudy.
Only an increase in manufacturing and warehousing job creation and higher corporate capital spending will boost the pace of sales and leasing in the manufacturing and warehousing sector.
Carter is a vice president in CB Richard Ellis’ Southern California Manufacturing Facilities Group.
