By SEAN WARD
The fall of the subprime mortgage industry and the subsequent downturn in the housing market has resulted in commercial real estate getting a lot of bad press lately. Despite those negative changes, the North and Central Orange County industrial
markets has managed to steer clear of the doom-and-gloom predictions and has remained strong.
Why? Market fundamentals.
Supply
On the supply side, the North and Central County industrial markets experienced even further tightening in the third quarter as vacancy rates dropped to 1.8% for manufacturing and warehouse space, down from 2.2% in the previous quarter. This was due in part to large blocks of vacant space being leased including a 221,000-square-foot building at 2750 Moore Ave. in Fullerton and a 122,000-square-foot building at 1650 N. Kraemer Blvd. in Anaheim.
The fourth quarter has seen large blocks of space continue to disappear from the market. Recent large transactions in North County include a lease of 144,000 square feet at 3125 E. Coronado St. in Anaheim and 220,000 square feet at 205 S. Puente Ave. in Brea. These two transactions alone represent 20% of the total 1.8 million-square-foot of vacant manufacturing and warehouse space in the market.
As supply disappears so do inexpensive rents. Average asking rents increased by 5% from the second to third quarter with the average monthly rents increasing to 62 cents, triple net, per square foot. Given the limited supply, it is easy to see why owners are becoming more and more aggressive with rents.
Demand
There are mixed signals in the marketplace regarding user demand. Despite strong demand for buildings more than 100,000 square feet, there has been a general slowdown in activity for buildings less than 100,000 square feet as users wait to see what will happen in the economy. As a result, the marketplace has seen an increase in lease renewal activity as companies maintain the status quo regarding their real estate.
Despite caution by users, demand forecasts show industrial employment in Orange County will continue to grow by 9,900 jobs during 2007 and 2008, according to projections by Torto Wheaton Research. This influx of jobs indicates that the need for industrial space will continue to be strong.
Such demand for industrial real estate will also continue to be strong due to a diverse local economy, strong labor pool and OC’s proximity to the Los Angeles and Long Beach ports. Lack of available buildings and land for new construction will continue to keep pressure on supply. There will be challenges, but strong market fundamentals in place will make it unlikely that we will see the demise of a strong OC industrial market.
Ward is a senior associate in the Anaheim office of CB Richard Ellis.
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