Orange County’s industrial market continues to see low levels of available space and tight vacancy rates. Activity in manufacturing and warehouse and research and development space slowed in the third quarter yet remains equal to the third quarter of 2005.
Demand for space is ongoing. OC is adapting with redevelopment that’s maintaining steady growth. As it stands, there is more than 1.1 million square feet under construction. A year ago, there was 40% less space being built.
In the third quarter, more than 3.7 million square feet of sales and leases were recorded. Making up about 30% of gross absorption, business owners selling their buildings rose in the third quarter, ending at more than 1.1 million square feet.
Leasing declined from the second quarter but still saw a healthy 2.7 million square feet of activity. Representing 83% of the industrial market, the manufacturing and warehouse sector produced the majority of activity with 3.3 million square feet. Among research and development space, 537,791 square feet of activity occurred.
Despite strong activity, a rather flat 46,567 square feet of net absorption was posted. This mainly was due to the 1.3 million square feet of new empty space that came onto the market in the third quarter. Vacancy levels, however, remain unchanged at 2.7%. The overall availability rate decreased from 5.1% in the second quarter to 4.9% in the third quarter.
The impact of strong economic indicators is reflected in the amount of recent industrial activity, as well as the tightening of availability and vacancy rates. These factors are putting pressure on lease rates and sale prices.
In the third quarter, the average asking lease rate for the county’s industrial buildings climbed a dramatic seven cents from the previous quarter to 70 cents per square foot. Average asking sale prices rose to $162 per square foot,a 30% rise from a year earlier.
Vacancy, Availability
OC’s industrial market continues to have record low availability and vacancy rates. The region’s availability rate decreased to 4.9% in the third quarter from 5.1% in the second. The manufacturing and warehouse sector follows closely with an availability rate of 4.7%. The research and development market had a minimal rise to 5.6%.
Of the submarkets, West County holds the highest rate at 7.9%, though down from last year’s 7.3%. Conversely, North County has one of the lowest rates at 4.1%, unchanged from the second quarter.
In the third quarter, vacancy levels remained steady at 2.7%. Coincidentally, the overall vacancy rate for manufacturing and warehouse and research and development space posted a 2.7% rate. The manufacturing and warehouse rate is an annual decline of 13% from 3.1% a year earlier. Research and development saw a 37% decline from the 4.3% vacancy rate in the third quarter of 2005.
Lease Rates
The average asking lease rate climbed seven cents to 70 cents per square foot in the third quarter. Rents in the manufacturing and warehouse sector rose five cents to 63 cents per square foot, a 13% rise from a year earlier. Research and development saw the most significant rise of 14 cents to 98 cents per square foot. With the exception of North Orange County, overall research and development rents increased across the board averaging 12 cents in the West, South and airport submarkets. Average asking sale prices also grew in the third quarter, increasing by 10% to $162.46 per square foot. The manufacturing and warehouse sector rose by more than $10 per square foot to $153.89. Research and development space gained more than $30 to fall just below the $200 per square foot mark.
Construction
With 26 buildings totaling 1.1 million square feet under construction in the third quarter, OC continues to expand and redevelop.
The manufacturing and warehouse sector accounted for 86% of construction in the third quarter. The research and development sector represents the remaining 14%.
West County accounts for the majority of construction with the bulk,626,444 square feet,in Seal Beach. North County and the airport area both have more than 100,000 square feet of manufacturing and warehouse buildings going up.
South County is set to add nearly 160,000 square feet to its research and development segment.
In addition, there is 1.5 million square feet planned and set to start construction at the end of 2006 and in 2007.
Analysis provided by CB Richard Ellis Group Inc.
