The overall vacancy rate in the Greater Airport Area industrial real estate market dropped to 1.8% at the end of the first quarter, down 33% from 2.7% a year earlier and down 30% from the fourth quarter.
The market generated positive net absorption of 538,790 square feet during the quarter. Companies continued to expand while many industrial properties are being converted to residential developments in Irvine and very little industrial construction is being put in the pipeline.
Market Makeup
The market—which includes the cities of Costa Mesa, Irvine, Fountain Valley, Santa Ana and Tustin—consists of just over 2,000 buildings totaling approximately 68.9 million square feet. Research and development makes up 21% of the submarket, and manufacturing and warehouse properties represent 79%. The overall industrial market continued to be tight, and we expect the trend to continue throughout the year, resulting in increased rents and sale prices.
The overall average asking lease rate increased 7.5% year-over-year in the first quarter to 72 cents per square foot. The average asking rent for research and development facilities was 90 cents per square foot, down 4.3%. Manufacturing and warehouse asking rent was 69 cents per square foot, up 7.8%. It’s predicted that asking lease rates will continue to increase throughout the year by another 7% or more as the market continues to tighten with increased user demand.
Asking sale prices also continued their upward trajectory during the quarter. The average asking price was $156.44 per square foot, an increase of about $20 per square foot, or 14%, from the prices recorded a year earlier. The recorded asking sale price was $144.52 per square foot in the fourth quarter. Sale prices should increase approximately 8% this year as owner-users continue to gain confidence in their businesses and interest rates remain at near-record lows.
Significant Transactions
Notable transactions during the quarter included Robinson Pharma Inc.’s lease of 126,796 square feet in Santa Ana; Honeywell Safety Products’ renewal of 93,312 square feet in Santa Ana; and Alfred’s Picture Frames Inc.’s renewal of 51,900 square feet in Costa Mesa.
An extension of the leases proved to be the best option for Honeywell due to the lack of alternative properties on the market.
Analysis provided by CBRE Research
