Small Deals Dominate as Big Players Wait; Vacancies Still Low
The Orange County industrial market showed signs of improvement in the first half with a positive turn in activity and stabilizing vacancy, led by the demand for smaller spaces.
After a rapid ascent in 2001, vacancy rates for industrial space leveled in 2002, holding relatively steady in the second quarter at just 4.4%. The resurgence of activity seen particularly within the smaller tenant market, has held the manufacturing and warehouse vacancy below 4% throughout the second quarter.
Vacancy in the R & D; market rose just higher than 7%. The overall availability rate crept up again in the second quarter to 8.6%, from 8% the previous quarter, mostly due to the opening of spaces larger than 50,000 square feet in size.
Activity in the industrial market began to pick back up in 2002, after a sharp decline seen during the economic struggle of last year. The majority of sale and lease activity in the first half of this year has been seen among smaller tenants.
About three-fourths of the transactions that took place in the second quarter were for spaces smaller than 30,000 square feet. Gross activity for these smaller spaces has increased 26% from the activity level seen in the same quarter of last year, while larger tenant activity has remained slow with larger tenants continuing to weigh expansion plans.
As a result, net absorption remained negative in the second quarter, yet showed promise of a recovery with a second consecutive quarter of increased net absorption.
The continued low vacancy in the industrial market has kept average asking lease rates relatively stable since the start of last year, despite the slowing activity. Since the second quarter of 2001, the average asking triple-net lease rate for industrial space has only dropped a total of 6%, to 58 cents, down from 62 cents. Both the manufacturing and warehouse and the research and development sectors saw a one-cent drop in average asking rents in the second quarter, to 53 cents and 76 cents respectively.
Average asking sale prices remained comparatively flat, drop-ping only 1% to $88.95 per square foot in the second quarter.
Industrial construction was nearly cut in half in the second quarter, after several years of strong development activity. With the completion of 15 industrial buildings (622,698 square feet), and only five new buildings breaking ground, a total of 586,360 square feet remained under construction as first half of the year came to an end.
More than half (56%) of the newly finished space was R & D; product, with the completion of a 270,000 square-foot building in Anaheim, and six new buildings in San Clemente. The remaining 44% of manufacturing and warehouse completions were split between the North and South Orange County areas.
Of the construction that began during the second quarter, four manufacturing and warehouse buildings are part of the Fullerton Business Park, totaling some 145,000 square feet. One building is Spectrum 5, a 27,000-square-foot R & D; building in South Orange County.
