Real Estate Watch: North and Central County
North County Perks Up, But Many ‘Wait and See’
By IAN BRITTON
Although overall leasing activity picked up substantially in the third quarter, most industrial tenants continue to be very conservative.
While a select few North County tenants have taken advantage of the temporary oversupply of space available for lease, most continue to hold tight until the ports issue is resolved, the corporate accounting scandals are handled and the prospect of war with Iraq plays out.
There seems to be far too much uncertainty for widespread expansion or a sustained recovery of any kind.
As interest rates continue to drop, small-building sales (10,000 square feet to 30,000 square feet) were the hottest segment in the industrial market in the third quarter. Sale prices were at record-high levels.
Given the limited amount of industrial land in North County, small buildings aren’t being built and users are paying more than $100 per square foot for 20-year-old properties.
Triple-net average lease rates have dropped a penny to 50 cents, marking a fifth-straight quarter of decline. North County’s industrial supply stands at about 105 million square feet and a true availability rate of about 8%.
This is largely due to the amount of space available for sublease. Despite the overall lack of confidence in the economy, a remarkable 1.4 million square feet of industrial space was leased during the third quarter, marking the largest increase in absorption since the beginning of last year.
The gross sales and leasing activity in the third quarter is nearly double that of the previous quarter.
There wasn’t a single lease deal for space greater than 100,000 square feet in the first half of the year. But in the third quarter, North County was home to two transactions in that size range: Midwest Air Technologies from Huntington Beach leased 127,375 square feet in Fullerton, and Progressive Marketing, formerly of Brea, leased 100,000 square feet in Anaheim.
And there were another five deals for space greater than 50,000 square feet in the quarter.
Tenants are finally beginning to take advantage of the softening lease market to lock in favorable terms for a five- to 10-year period. North County tenants can negotiate aggressive lease terms while minimizing upfront costs associated with moving.
Due to the lack of available land, construction activity in OC has been limited.
The Voit Brea Business Park is well under way, set for 16 buildings with 510,000 square feet. About 386,000 square feet are complete. Seven of the buildings are in escrow (most in the 15,000-square-foot to 30,000-square-foot range), further illustrating the increased demand of the owner/user.
That is positive news for property owners, as most industrial brokers struggle to find well-located space for clients that are looking to buy. As values continue to rise and interest rates remain low, now may be a great opportunity for local owners to sell and exchange their profits (via a 1031 tax deferred exchange) into newer, larger investments.
As our industrial market continues to recover and prosper, real estate players hope for more absorption next year.
Britton is a sales professional in the Anaheim office of CB Richard Ellis.
