The supply of available industrial space remained tight as demand continued to grow in the beginning of the year.
The vacancy rate dropped to 2.6% in the first quarter from 2.9% in the fourth quarter of 2013.
Also, the availability rate dropped in the first quarter to 5.1%, leaving few options for prospective tenants and buyers.
The low availability rate has led some with vacancies to increase their asking rental rates and sale prices. The overall average asking monthly lease rate in Orange County increased 1 cent from the previous quarter to $0.67 per square foot.
There was an 8.3% increase in gross activity in OC’s industrial market in the first quarter, with the sector reaching nearly 2.7 million square feet.
The boost was partly due to the uptick in activity in the Greater Airport Area.
The Greater Airport Area recorded 756,708 square feet of activity, up 56.3% from the fourth quarter of 2013. Notable transactions, such as a 78,000-square-foot lease in Costa Mesa with Fisker Automotive and a 62,000-square-foot user sale with Pan Pacific Plumbing in Fountain Valley, contributed to the increase in activity.
The increase in gross activity led to an increase in net absorption over the previous quarter of nearly 400,000 square feet, ending the first quarter in the black with 808,400 square feet.
The small-building market, consisting of buildings 30,000 square feet and smaller, has consistently generated a healthy amount of activity throughout 2013. The sale prices have had rapid increases, and the need for off-market deals has become a necessity.
Small-business owners have started to rebound from the recession, which has helped the small-building market thrive. But buildings larger than 70,000 square feet, particularly in South Orange County, have been stagnant and have seen little to no activity.
The tight market has prompted landlords to offer minimal concession packages or incentives to tenants.
Concessions
The typical concessions include standard, market-ready improvements such as paint, carpet and general cleanup. They also typically include one month of free rent on a three-year deal or two months of free rent on a five-year deal. General concessions have decreased over the last year with free rent and the amount of tenant improvement allowances lessening. The industrial market continues to be tight, and concessions are expected to be reduced to a bare minimum.
Industrial development in Orange County is challenging with the competition from residential developers and the high cost of land.
North OC
North OC has been the only submarket with construction in the past 12 months with the Anaheim Concourse Distribution Center. The first phase of the project is currently under construction. Two construction projects commenced in the first quarter, adding an additional 237,000 square feet of development. The projects included a 93,000-square-foot building that broke ground at 4850 La Palma Ave. in Anaheim.
The West Orange County submarket added to the under-construction number in the first quarter, with two buildings totaling 144,754 square feet that broke ground in Huntington Beach. Many upcoming projects remain in the pipeline, and development should continue to increase throughout the year.
Analysis provided by CBRE Research
