Real Estate Watch: Research and Development
Small R & D; Space Still Hot While Construction Slows
The demand for smaller research and development space stayed strong in the second quarter, although activity for larger tenants continued to be weak.
Research and development buildings comprise 17% of the 240 million-square-foot industrial market in Orange County. About 65% of R & D; space is in South County and the John Wayne Airport area.
Gross activity of research and development space peaked at 776,415 square feet in the second quarter, the highest level since the fourth quarter in 2000.
Most of that activity,77%,can be attributed to the swell in sale activity that took place as buyers sought to take advantage of rock-bottom interest rates.
Two large sale deals in North County,greater than 100,000 square feet each,combined with multiple smaller sale deals in the John Wayne Airport area accounted for the boost in gross activity.
South County vacancies rose despite the increase in activity.
That hurt countywide absorption levels: OC had 215,415 square feet of negative absorption in the R & D; market in the second quarter.
The countywide increase in vacancy pushed down average asking lease rates for R & D; space in all OC markets except the John Wayne Airport area.
Rates there rose three cents per square foot in the second quarter. West County saw the most dramatic change in asking rates, with the average falling by seven cents per square foot.
Overall, average asking triple-net lease rates fell by a penny to 76 cents per square foot.
R & D; construction showed a big decline in the second quarter.
The completion of nearly 80,000 square feet in the Talega Business Park in San Clemente and a 270,000-square-foot single-user building in Anaheim added roughly 350,000 square feet to the existing rentable space in the county.
Only five R & D; buildings remain under construction in the Irvine Spectrum, amount- ing to about 100,000 square feet.
Data and analysis provided by CB Richard Ellis Services Inc.’s Global Research and Consulting.
