Real Estate Watch: North & Central Orange County
Demand for Industrial Space Seen Increasing
By IAN BRITTON
Despite a very challenging year for most North Orange County business owners, a sense of optimism is beginning to surface.
Telephones are starting to ring again, and users who put real estate expansion requirements on hold last year are beginning to take advantage of a greater supply of quality buildings at reduced values. In mid-January two 50,000-square-foot sections of the new 192,785-square-foot facility built on Anaheim Boulevard by The O’Donnell Group were leased, giving the industrial market a much needed boost.
Last year was challenging for the manufacturing sector, as we noted, continuing declines in new orders and layoffs among the paper, printing, chemical, industrial machinery, electronic and computer component industries. On the other hand, industries such as food, surgical and medical supplies, dental instruments and cleaning supplies fared well. Even though Chapman University doesn’t expect a rebound until the second quarter of this year, we are already seeing growth in defense spending as new orders continue to rise. This should directly benefit North County, where many defense-oriented companies are located (see the list on page 17). Additionally, inventories have been dropping at a rapid rate due to the widespread price slashing in the automotive and tech sectors, so as spending rebounds manufacturers will have to respond with increased production.
Even though vacancy rates have increased among properties in the 70,000- to 200,000-square-foot range, particularly in Fullerton and Brea, the market for smaller freestanding buildings of 15,000 to 45,000 square feet remains very tight. Given that these properties make up a majority of the submarket, it is interesting to note that lease rates and sale prices increased by approximately 5% since the fourth quarter. Currently, average lease rates are close to 58 cents per square foot per month, triple-net, and sale prices are $85 per square foot or higher, with smaller units going for more than $90 per square foot.
As we move into 2002, we are seeing sound market fundamentals and industrial real estate continues to be a favorable investment vehicle. In fact, as banks tighten credit terms for business loans and Wall Street continues to demand improved earnings, sale-leasebacks have become very popular among local business owners searching for capital but still needing to occupy their properties. In most cases, companies can make better use of the cash in their business and produce a higher return than having that capital tied up in real estate.
Britton is an associate in the Anaheim office of CB Richard Ellis.
