The amount of available industrial space here stood at about 7% at the end of the second quarter, making Orange County once again one of the tightest industrial markets in the country.
But for tenants looking for warehouse and distribution space,especially large buildings,there’s more choices than in recent memory and growing room for optimism, area brokers say.
“We’re in the middle of a shift in the market,” said Jeff Cannon, corporate managing director for the Irvine office of Studley Inc. “Rents aren’t going up, and some landlords are beginning to reach to make deals, which in some cases means they’re lowering rents. The days of 5% (or more annual rent) increases are over.”
Vacancy rates are up about 2% from a year earlier, and the average monthly lease rate for industrial buildings fell 2 cents in the second quarter to 76 cents, according to CB Richard Ellis Group Inc.
The county’s industrial market is starting to see softening rents, slow sales, fewer leases and increased vacancy rates,the same trends the office market has been facing for more than a year,albeit not nearly on as big a scale as the slumping office sector, brokers said.
“It’s a challenging time,” said Clyde Stauff, senior vice president for the Irvine office of Colliers International. “The volume of transactions has decreased.”
On the upside, there’s beginning to be more interest in industrial buildings and land available for development, especially in North County. Previously, businesses that deal with the ports of Long Beach and Los Angeles set up camp in the Inland Empire, drawn to the large amounts of space there. But the high cost of fuel has some of those companies looking at local industrial space, according to Stauff.
Many companies are considering closer, infill development sites in North County, said Stauff, who is marketing a 21-acre Anaheim site on Magnolia Avenue for Delphi Automotive Systems LLC.
Among other big properties recently put on the market is the 15-acre Fullert on plant used by Chicago-based cardboard box maker Smurfit-Stone Container Corp.
Close to a dozen interested parties looked at the property and submitted initial bids a few weeks ago. That number of bidders is now believed to have been cut down to three or four. City officials said they expect a sale to be announced by the end of the year.
The property includes a 140,000-square-foot plant and a 40,000-square-foot office. The office likely could be retrofitted, but the plant needs to be torn down and redeveloped by the property’s new owner, according to sources.
Smurfit-Stone is closing its Fullerton site as it moves to a more modern plant in Cerritos.
The Fullerton property is one of a growing number of large sites that have come back on the market as of late.
Studley’s Cannon said he counts nearly 50 industrial buildings in OC totaling more than 100,000 square feet that are on the market either for sale or lease. That’s nearly twice as many buildings as a year ago.
“We have significantly more (large blocks of) space on the market than at this point last year,” he said. “Large companies (looking for space) still need to plan 18 to 24 months ahead, but there are more options now.”
In addition to offering more tenant concessions, in some notable examples landlords are going all out to entice tenants to move into their industrial properties.
At Crossroads Anaheim, a newly renovated 276,825-square-foot manufacturing and distribution complex at 1650 N. Kraemer Blvd., tenant brokers now are being offered a $100,000 bonus if they help complete a sale or five-year lease for an empty 154,225-square-foot warehouse on the two-building property by the end of the year.
Developer BPG Properties Ltd. bought the two-building property in late 2006 for $29 million and did a major renovation on the buildings. Last year, Pods of Los Angeles LLC, a portable storage company, signed a six-year lease for 122,600 square feet at the smaller of the two buildings. That lease was valued at about $6 million.
The Anaheim office of the CB Richard Ellis now is marketing the remaining Anaheim Crossroads property, and advertising the $100,000 bonus.
On the for-sale side of the market, there’s still a disconnect between sellers and buyers, which has made for a slow summer, said Bob O’Neill, investment officer for the Irvine office of Chicago-based First Industrial Realty Trust Inc.
When deals are being made, it’s often tenants that are buying buildings, rather than investors, said O’Neill.
“There’s no frenzy to buy now,” said Collier’s Stauff.
The average asking sale price for an industrial building in OC stood at $166 per square foot at the end of the second quarter, about a 4% drop from a quarter earlier and about 3% below a year ago, according to Voit Commercial Brokerage LP.
More buildings coming on the market is likely to keep pushing those prices down, brokers said.
