Real Estate Watch: North & Central Orange County
Opportunity for North County’s Large Tenants
By IAN BRITTON
Although activity in the North Orange County industrial market began to ramp up in the first quarter with absorption figures improving slightly, vacancy rates have continued to climb in most submarkets.
As a result, the number of transactions for OC’s largest commercial real estate service firms fell nearly 14% vs. last year.
Construction activity has slowed substantially due largely to the lack of available land and an overall decrease in demand from large corporations. Average asking lease rates followed suit in the second quarter, down to 49 cents per square foot from 53 cents per square foot in the first quarter.
There has been only one lease transaction this year greater than 100,000 square feet in North Orange County,it was signed in August.
In fact there are more than 30 buildings available in North County that are 100,000 square feet and larger. Essentially, there is a three-year supply in this size range based on current activity.
What does this mean for large tenants considering relocation? Opportunity.
Although activity has picked up in recent weeks, local businesses should know that this temporary oversupply of space has created a favorable atmosphere for tenants.
As leasing has slowed, local business owners have been opting to purchase properties and have continued to take advantage of record-low interest rates. In recent quarters, buying industrial real estate has proven to be a safer alternative than having money in the stock market. Users are also looking to control their expenses and avoid paying annual rental increases to landlords.
Many local business owners who have been generating significant amounts of cash in the past few years have no problem coming up with a 10% down payment to own. They want to control their own fate and enjoy the tax benefits. Given the favorable financing available, a user can buy a building for the same monthly payment as they can lease.
There is a sharp increase in demand for smaller free-standing buildings, especially in the 8,000- to 30,000-square-foot range, with a very limited supply of quality buildings.
This is good news for owners.
Given the limited amount of industrial land in North County, small to mid-size buildings are not being built anymore. As small businesses thrive and interest rates remain attractive, demand has only been increasing. Of the roughly 50 deals in the first quarter, 90% were for buildings 50,000 square feet and less. Despite a slowdown in the leasing market, building sale prices continue to rise and are up over 10% since the beginning of the year.
Prices have even shot past 1999-2000 price records when the industrial market was far healthier.
Asking sale prices for buildings in the 8,000- to 30,000-square-foot range vary from $82 per square foot to $115 per square foot depending on size and the amount of improvements.
Buildings with fenced yards top the list and are usually sold with multiple back-up offers.
The sale market continues to heat up and now may be a great time for owners to maximize value.
Britton is a sales professional in the Anaheim office of CB Richard Ellis.
