The Orange County industrial market faced a tough start in 2009, closing the first quarter with roughly 1.7 million square feet of activity, down 54% from the 2.5 million square feet seen a year earlier.
OC recorded negative 1.7 million square feet of absorption during the first quarter, with the manufacturing and warehouse market being responsible for more than 80% of this negative absorption.
OC has not seen such a dismal absorption figure since the negative 2.8 million square feet posted eight years ago, during the fourth quarter of 2001.
OC saw yet another increase in its vacancy and availability rates during the first quarter. The overall vacancy rate increased by 18% from the previous quarter, going from 4% posted in the fourth quarter to 4.7%. Much of this vacant space can be attributed to the weakening national economy, which has caused many companies to shut down business operations, vacate buildings and walk away from leases before the lease terms expire.
This, in turn, has added to the increase in availability. There was a 22% increase in the availability rate in OC during the
first quarter, going from the fourth quarter’s 8.2% to the first quarter’s rate of 10%.
With the increase in availability comes a decrease in asking sale and rental rates, as tenants now have options when it comes to finding available space.
The industrial market has seen a dra-matic decrease in its asking sales prices as it has become extremely difficult for buyers to obtain the financing necessary to complete the purchase of a
building.
OC’s average asking sale price is now $160.49 per square foot, which has decreased by slightly more than $15 from a year earlier.
Rental rates in OC have decreased significantly as well. They are down 5 cents from the average asking lease rate seen during the fourth quarter of last year and stand at 68 cents per square foot.
Activity
Of the submarkets, South County was the only one to post absorption, with 31,794 square feet, which is up signi-ficantly from the previous quarter’s negative 207,740 square feet of absorption.
The North County submarket saw the majority of the negative absorption with 1.14 million square feet at the end the first quarter.
The research and development market produced the largest increase in its vacancy rate, increasing 26% to close the first quarter with a vacancy rate of 4.4%. The market also saw a significant increase in its availability rate, increasing from 8.2% to 10%.
This increase in the availability rate represents a 22% increase from the rate posted three months earlier during the fourth quarter of 2008.
The manufacturing and warehouse sector posted a significant increase of availability, growing to 10.2% from the fourth quarter’s posted rate of 8.1%.
Lease Rate
The first quarter saw a decrease in average asking lease rates, going from the fourth quarter’s asking rate of 73 cents per square foot to now stand at an average asking rate of 68 cents per square foot.
The South County submarket recorded the highest average asking lease rate, at 90 cents per square foot, as well as the most significant decrease in asking lease rates, down 12 cents from the $1.02 recorded in the fourth quarter.
The North County submarket holds the lowest average asking lease rate at 60 cents per square foot.
The West County submarket shed 2 cents in the first quarter to 62 cents per square foot, while the airport area declined 5 cents to 75 cents per square foot.
As with any mature market, new construction starts are few and far between in OC. There is currently one project under construction here totaling 52,840 square feet. It is built-to-suit project in Fountain Valley.
The first quarter saw one 14,507-square-foot project complete construction in the Irvine Spectrum, adding to the South Orange County research and development inventory. OC currently has 434,299 square feet of industrial space that remains in the planning stage.
Data and analysis by CB Richard Ellis Group Inc.
