Vacancy Increases, Activity Steadies, Lease Rates Fall
The industrial market’s third-quarter performance was affected by the challenges facing California businesses.
Industrial absorption and rents slipped as tenants and owners adjusted to higher productivity here and cheaper labor in other parts of the world.
On the other hand, low interest rates continued to feed the frenzy of industrial building sales with average asking sale prices at the highest levels seen in years.
Ultimately, lower asking rents and increased availability have created favorable conditions for research and development or manufacturing and warehouse tenants looking to expand or relocate in Orange County.
Vacancy
Higher labor and energy costs domestically have slowed manufacturing expansion in OC. As businesses either downsized or left, the amount of vacant industrial space crept over 13 million square feet in OC in the third quarter.
Despite the economic slowdown, the manufacturing and warehouse sector still remains a tight market with just 4.9% unoccupied.
Net Absorption
Gross activity levels nearly mirrored the previous quarter at 3.6 million square feet.
Activity among tenants with less than 20,000 square feet picked up in the third quarter, accounting for more than half of the industrial deals in the county.
Large tenants between 50,000 and 100,000 square feet showed the least movement this quarter, representing just 19% of the square feet transacted.
Lease Rates
Average asking lease rates continued to slide gradually this quarter as landlords aggressively tried to retain their tenants and attract new ones at the same time.
The county averages for manufacturing and warehouse and research and development space sit at $0.52 and $0.77 per square foot, respectively.
On the flip side, average sale prices rose nearly 7% to $95.41 per square foot as tenants continued to take advantage of rock-bottom interest rates.
Construction
Developers broke ground on 14 new buildings this quarter bringing the total number of buildings under construction to 31.
Most projects range from 20,000 to 50,000 square feet and are in North County or the John Wayne Airport area.
At the end of the third quarter, the 53,000-square-foot Tesla Business Center in the Irvine Spectrum was the only project out of the 556,996 square feet built this year to be located outside North County.
Analysis provided by CB Richard Ellis’ Information Management Department
