The industrial market continued to build on last year’s robust trends. There remained a lack of available product, though the market finished the quarter with positive net absorption of 714,511 square feet. The market favored landlords and sellers. The overall market performed very well as strong tenant demand and activity helped bolster solid occupancy gains and rental increases.
Lease, Sale Rates
The average asking lease rate at quarter’s end was 78 cents per square foot, up 3 cents from the fourth quarter due to high competition among tenants over a limited supply. Rental rates trended upward in all class types, particularly for class A product, whose rates grew significantly over the past 12 months.
The manufacturing and warehouse sector closed the quarter at 73 cents per square foot, up 4 cents. The research and development sector closed at 95 cents, down 3 cents.
Low vacancies gave landlords more control over rent, and concession packages tightened.
The industrial sales market ended the quarter with an average asking sale price of $188.23 per square foot, up 5.3%. The manufacturing and warehouse sector ended with an average of $187.58 per square foot, up 7.7%. Research and development ended with a price of $189.74, down 0.9%.
The vacancy rate was 1.8% at quarter’s end, down from 1.9%. Vacancies remained at an all-time low, though class A product vacancy tightened further as tenants sought buildings with state-of-the-art features. There’s therefore a growing gap in supply and demand between class A and B products. Airport Area vacancy increased 20%, though it remained the lowest in the county at 1.4%.
Availability
Availability also fell, closing at 3.9%, down from 4.4%. The manufacturing and warehouse sector ended with an availability rate of 3.9%, down from 4.5%, while research and development finished at 3.8%, up from 3.5%. Many professionals looked to off-market or unlisted properties to find space. We predict that availability will increase modestly by year-end and completions to slightly outpace absorption.
The industrial market generated over 3.4 million square feet of gross activity during the quarter, down 0.7% and attributable to shrinking available inventory in the region. North Orange County and the Airport Area contributed greatly to gross activity, accounting for 68%.
The county generated 714,511 square feet of positive net absorption, a majority of which was in North Orange County, which generated 648,796 square feet. Aerospace, third-party logistics, apparel and food-related companies continued to be very active due to organic growth. L&L Foods, a provider of high-volume food packaging, leased over 200,000 square feet in Anaheim, and Meggit Defense Systems, a manufacturing contractor, leased over 150,000 square feet in Irvine Spectrum.
Construction slowed during the quarter. Just 231,068 square feet was under way, all in North Orange County and the Airport Area. Three buildings totaling over 500,000 square feet were delivered to the market, all also in North Orange County and the Airport Area. We predict that development will be steady this year.
Analysis by CBRE Research
