Despite economic concerns and the relaxation of activity, the Orange County industrial market held strong in the second quarter with a vacancy rate of just 2.0%. While the M & W; vacancy rate has crept up in the past two quarters from a historical low of 1% at the end of 2000 to 1.8% in the second quarter, the R & D; market has tightened in that time. The R & D; vacancy rate dropped to 2.8% in the second quarter, down from 3.9% in the second quarter of 2000. With such a tight market, larger, quality vacancies are more difficult to come by. Of the 117 vacancies at the end of the second quarter, only 26 offered more than 50,000 square feet. However, the availability rate for the industrial market crept up to 6.1%, from 5.7% last quarter, showing the promise of larger spaces coming to market.
Insecurity about economic conditions and energy crisis slowed the pace of activity in the market, yet overall industrial net absorption reached 147,542 square feet in the second quarter, due to the positive absorption in the R & D; market. R & D; net absorption rose to a five-quarter high of 293,000 square feet, the majority in the North and West Orange 30,000 square feet were leased. The M & W; market experienced a total of 145,458 square feet of negative net absorption in the second quarter, largely due to the lack of quality vacant space forcing some tenants to neighboring areas such as the Inland Empire.
The overall average asking lease rate for industrial space has been hovering between 61 cents and 63 cents per square foot per month since the beginning of 2000. The second quarter’s average asking rent remained within that same range, but dipped 1 cent from last quarter, to 62 cents. R & D; rates leveled at 80 cents in the second quarter, while M & W; rates averaged 58 cents, down a penny from the first quarter. South Orange County continued to lead the market with an overall industrial average asking rent of 76 cents per square foot per month, 23% higher than the average of the county. In contrast, North Orange County asking rents remained 13% below the county average, with an average rate of 54 cents.
With industrial vacancy remaining less than 5% in the second quarter, construction activity for the industrial market increased to 1.9 million square feet, up from 1.7 million square feet in the first quarter. The majority (88%) of the industrial construction in the second quarter was taking place in the M & W; sector. North Orange County, where the M & W; vacancy rate remained less than 1%, had the most construction under way as the second quarter came to a close, with 15 properties totaling more than 700,000 square feet. Another 2.7 million square feet remain in the planning pipeline, in response to the continued low vacancy rate in the Orange County industrial market. n
