Real Estate Watch: Manufacturing & Warehouse
Small Buildings are Bright Spot in Sluggish M & W; Market
By GARRETT CARTER
Sales and leasing of manufacturing and warehouse space in the June quarter declined, with activity falling to 1.6 million square feet.
All submarket areas in Orange County dropped, with overall negative absorption of 250,000 square feet.
Available manufacturing and warehouse space rose to 16.1 million square feet. Actual vacant manufacturing and warehouse space in the county increased only slightly to 7.8 million square feet. Although vacancy rates only increased 3.9%, the actual availability of space being marketed for sale or lease increased to 8.1%.
Availability of sublease space has increased dramatically in the past year to 2.2 million square feet vs. 820,000 square feet last year. This big increase, if it continues, may have a major negative impact on future asking lease rates.
Asking lease rates declined only slightly during the June quarter, but are off almost 10% from a year ago.
Construction activity dropped about 25% during the quarter to 487,000 square feet. New construction activity should remain at these lower levels through the balance of the year.
The bright spot in manufacturing and warehouse is small buildings for sale or lease.
Activity remained consistent with the last several years as lease rates were strong and sale prices increased slightly quarter over quarter. Declining interest rates and increasingly available mortgage capital are driving the higher sale activity.
Sales and leasing in this segment of market should remain strong, only hindered by the lack of available buildings.
After a two-year slide, manufacturing capacity utilization steadied during the first five months of the year, but suffered a surprise setback in June as new orders for manufactured durable goods declined by 3.8%.
And California’s manufacturing sector lost jobs for the 18th-straight month with 9,900 jobs lost in July, according to the Department of Finance. Manufacturing employment has fallen by 83,000 workers this year.
The jobs picture creates a sluggish outlook for future job growth and activity in the manufacturing and warehouse sectors in the county,OC is not immune to the national or California scene and won’t recover until the larger markets rebound.
Carter is a vice president in CB Richard Ellis’ Southern California Manufacturing Facilities Group.
