Real Estate Watch: West Orange County
Tenants Stay On the Sidelines for Now
By JOSHUA R. BONWELL
Call it a “cautious” fourth quarter in West Orange County.
Industrial tenants will continue to take a conservative approach to their expansion plans and warehouse requirements until the conflicts in Iraq and Afghanistan play out and local and national economic fundamentals strengthen.
While the lease market remains quiet, the sales market continues to plow ahead at a brisk pace.
The industrial market for small buildings 10,000 to 30,000 square feet remains the cornerstone of the sales market as users take advantage of historically low interest rates to drive demand.
Given the limited amount of industrial land in West County, small building developments are scarce as developers opt to build larger buildings, resulting in users paying record prices for older buildings.
The fourth quarter saw average net lease rates rise five cents to 60 cents vs. the third quarter. Lease rates are up 7.1% compared to a year earlier.
Worth noting: the increase in lease rates was not the norm in most other OC and Los Angeles industrial submarkets. That was evidenced by dropping rates as owners compensate for the oversupply of sublease space on the market.
Big news of the quarter was RREEF’s acquisition of the four-building complex of industrial and corporate buildings on Walker Street in Cypress. The buy gives RREEF a very strong position in the market.
Developed by Ewing Development Co., the project offers four state-of-the-art buildings for sale or lease, ranging in size from 39,000 to 67,000 square feet.
RREEF’s buildings, coupled with the sale and lease activity, gave way to a modest change in the fourth quarter vacancy rate, which rose to 1.9% from 1.5% in the third quarter.
By virtue of its acquisition, RREEF appears to be optimistic about the market and its relative strength as market fundamentals return to equilibrium.
And, as the economy recovers and interest rates ascend, many would-be owners could be priced back into the lease market due to skyrocketing costs and liability of owning real estate. They likely will be looking for modern space to suit their needs.
Bonwell is an associate with the Institutional Industrial Group for CB Richard Ellis in Southern California.
