The Greater Airport Area industrial real estate market, which includes Costa Mesa, Irvine, Fountain Valley, Santa Ana and Tustin, remained tight in the fourth quarter, and we expect that trend to continue through this year, resulting in increased rents and sale prices.
The market consists of more than 2,000 buildings totaling approximately 68.9 million square feet and is broken down into research and development and manufacturing and warehouse properties. R&D properties make up 21% of the submarket, manufacturing and warehouse comprise 79%.
Vacancy Rates, Absorption
Vacancy rates in the market were at 2.6%. Rates decreased by 11.5% from the 2.9% recorded in the fourth quarter of 2013. The rate remained flat compared to the third quarter of 2014.
Fourth-quarter positive net absorption was 8,529 square feet. The total 2014 positive net absorption was 216,629 square feet. We can expect the vacancy rates to continue to decrease in light of the fact that companies are expanding; many industrial properties are being converted to residential developments in Irvine; and no industrial construction is in the pipeline.
Asking Rates
Asking lease rates increased 7.4% in the market in 2014 from 68 cents per square foot in the fourth quarter of 2013 to 73 cents per square foot in the fourth quarter of 2014.
The average asking rent for research and development facilities was 89 cents per square foot, down by 11.3% from a year ago. The manufacturing and warehouse asking rent was 62 cents per square foot in the fourth quarter, up 12.9% for the same period.
The market continues to tighten with increased demand from users, and we forecast asking rental rates to increase this year by another 7% or more.
Asking sale prices also continued to rise last year.
The average price for an industrial building in the market was $144.52 per square foot in the fourth quarter, an increase of about $10 per square foot, or 7.4%, over the asking prices a year ago. In the third quarter, the recorded asking sale price was $140.64 per square foot. We expect sale prices to increase another 8% or more this year as owner-users continue to gain confidence in their businesses and interest rates remain at near-record lows.
Significant Transactions
A couple of lease transactions to note include two lease renewals. Logomark extended its 122,807-square-foot lease at 1201 Bell Ave. in Tustin, and Honeywell Safety renewed its 93,312-square-foot lease at 3001 S. Susan St. in Santa Ana. There’s a lack of alternative properties available on the market, and lease extensions proved to be the best option for the companies.
Fourth-quarter activity in the market was also highlighted by a few sale transactions. Public Storage purchased the 183,009-square-foot property at 16700 Red Hill Ave. in Irvine, with plans to convert it into a two-story self-storage facility. A private investor purchased the 185,000-square-foot industrial/retail business park at 1714 McFadden Ave. in Santa Ana from Olen Properties, and CT Realty acquired the 126,796-square-foot industrial property at 2811 S. Harbor Blvd. in Santa Ana.
Fippinger is a senior associate at CBRE.
