Orange County’s industrial market continued to perform well, possessing tight vacancy levels and steady activity. This diversified market consists of 6,642 properties totaling nearly 246 million square feet, and ranges from the highly concentrated manufacturing submarkets of North and West counties, to the growing research-and-development sector in South County. Overall, these industrial submarkets contributed to an availability rate of 5.3%, while the vacancy rate stood at 3.2%.
Some businesses also are taking advantage of low interest rates to buy properties rather than leasing them. In the second quarter, more than 2.3 million square feet of transactions was recorded, of which 32% were sales totaling 740,701 square feet. This sale activity was up 69% from the first quarter, but was consistent with the sales activity from the first quarter in 2006.
Leasing activity stayed relatively consistent in the second quarter registering 1.6 million square feet, bringing the year-to-date total to 3.5 million square feet. The majority of the transactions fell into the 10,000-square-foot to 19,999-square-foot range, while activity among the 20,000-square-foot to 29,999-square-foot range increased this quarter by 11%.
The average asking lease rate climbed another 2 cents in the second quarter to 75 cents per square foot. This combined lease rate was attributed to the average asking research-and-development rate of $1, which also was up 2 cents from the previous quarter, as well as the manufacturing and warehouse rental rate of 69 cents per square foot. After remaining steady in the first quarter, average asking sale prices rose slightly and stand at $168.60 per square foot.
Net Absorption
Although lease and sale activity remained constant, an increase of vacant space coming onto the market led to negative absorption in the second quarter. The negative 237,706 square feet of net absorption seen in the second quarter was a result of the 146,915 square feet posted by the manufacturing and warehouse segment, coupled with the 87,791 square feet that occurred in the research-and-development sector. West County absorbed more than 146,000 square feet, which mainly was concentrated in Garden Grove and Seal Beach. The airport area endured the majority of the negative absorption due to a 4% increase of vacant space coming onto the market, specifically in Fountain Valley and Santa Ana.
Vacancy & Availability
Record-low availability and vacancy rates continued to be a constant theme in the OC market. The region’s availability rate ticked up slightly to 5.3% from 5.1% in the first quarter. The manufacturing and warehouse sector followed closely with an availability rate of 5.2%, while the research-and-development market held at 5.5%. Of the submarkets, West County held the highest rate of 9.5%, mostly concentrated in Seal Beach’s Pacific Gateway Business Center. Conversely, North County possessed one of the lowest rates of 2%, up minimally from 1.9% in the first quarter. Overall vacancy levels inched up slightly to 3.2%. manufacturing and warehouse space posted a level of 3.2%, while the research-and-development sector had a vacancy rate 3.3%.
Average Asking Lease Rates
Asking rents continued to rise for OC’s industrial market. As it stands, the average asking lease rate was 75 cents per square foot. After increasing 4 cents in the first quarter, the average asking lease rate for manufacturing and warehouse space gained another penny to 69 cents per square foot.
Also increasing, the research-and-development segment climbed to the $1 mark from 9 cents per square foot posted in the previous quarter. Due to this market’s amount of research-and-development space, the South County submarket saw the most significant rent increase of 14 cents to $1.06 per square foot. Both West Orange County and the airport area rose 2 cents to 67 cents and 84 cents, respectively. North County added 1 cent to hit 60 cents per square foot despite a decline in its research-and-development average asking rate.
Average asking sale prices also experienced an increase in the second quarter to an average of $168 per square foot. The manufacturing and warehouse sector contributed to this rise and stood at $163 per square foot, whereas research-and-development properties dropped to $197 per square foot.
Construction
Construction was completed on three buildings in the second quarter totaling 204,222 square feet. These were the final buildings slated for the 45-acre Gateway Business Center in Seal Beach, which was surplus Boeing Co. land that took eight years to get approved due to Coastal Commission restraints.
Two additional buildings at the North Anaheim Industrial Park began construction in the second quarter, bringing the total to four buildings and 70,898 square feet in the city of Anaheim.
The city of Fullerton saw construction activity at the Valencia Business Center and now has 10 buildings larger than 10,000 square feet under construction, which add up to 118,080 square feet.
In the Irvine Spectrum, one research-and-development building started construction and will add another 22,397 square feet by first quarter of next year.
Redevelopment of two existing buildings has decreased the airport area’s total space by 183,000 square feet. One of these properties at 16782 Von Karman in Irvine is being redeveloped into small condominiums for sale. The other property, which was located at 18691 Jamboree, was demolished and is slated for a new housing/mixed-use project.
Analysis provided by CB Richard Ellis Group Inc.’s research unit.
