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Friday, Jul 19, 2024

Industrial Product Dominates Development in OC

Industrial product took center stage among active commercial developers in Orange County in the past year.

Developers built 3.8 million square feet for the 12 months that ended in April—a 23% increase, according to the Business Journal’s annual list.

About 3 million square feet of that was for industrial properties, according to data from real estate market tracker CoStar Group Inc.

That industrial size is up from about 87% from pre-pandemic times—from 2017 to 2018—prior to the e-commerce boom fueled by stay-at-home orders and remote work policies.

Notable industrial projects include the 1.2 million-square-foot Huntington Gateway project in Surf City by Sares Regis Group, ranked No. 1 on this year’s list of commercial developers.

The Newport Beach-based firm completed the six-building industrial complex, located a few miles from the Garden Grove (22) and the San Diego (405) Freeway junction, last October. It’s an office-to-industrial conversion, one of many around the county and the nation, as office properties are still worth about half of their pre-pandemic values.

The industrial complex is also home to a new, well-funded defense technology upstart founded by Ethan Thornton, Mach Industries. The company, whose valuation tops $300 million, in April inked a lease for a 110,000-square-foot building along Bolsa Avenue.

Another sizable, recently built OC industrial project is the 337,000-square-foot building in Fullerton leased by Sprouts Farmers Market Inc. (Nasdaq: SFM). The building’s developer, Goodman North America, the Irvine-based subsidiary of Australia-based Goodman Group, completed the project last July as part of a larger, 1 million-square-foot project. Goodman ranks No. 2 on this year’s list.

Demand for OC industrial real estate has reached record heights since the pandemic.

Though the vacancy rate for such properties has modestly increased from the year prior, it remained “well below [the] historic average,” according to data from CBRE Group Inc.

In the first quarter this year, the vacancy rate totaled 1.5%; the region’s 15-year average is above 2%.

OC is “the tightest market in Southern California,” a report by JLL said.

Incoming Industrial Product

The industrial craze among developers isn’t going away any time soon.

OC had 1.8 million square feet of industrial properties under construction in the first quarter, up 29% from the quarter prior, according to CBRE.

Among those under construction is 17300 Red Hill Ave. in Irvine, a city that’s seen a major revival of industrial properties after decades of little to no significant development for the product type.

The 17300 Red Hill Ave. site, near the headquarters of Edwards Lifesciences Corp. (NYSE: EW), was formerly home to a 160,000-square-foot office complex, dubbed Inwood Park.
The lot will soon be home to a 156,632-square-foot warehouse, dub-bed Red Hill Logistics Center.

The property’s owner, Des Moines, Iowa-based insurance and investment management company Principal Financial Services, bought the office campus last August for $44 million from a joint venture between New York-based asset management firm TPG Angelo Gordon and commercial real estate firm Lincoln Property, which counts a large local presence and is No. 12 on the list.

The project joins a host of industrial developments set to deliver in Irvine this year, including LogistiCenter at Irvine I & II by Reno, Nev.-based developer Dermody Properties, which recently purchased one of its lots from Irvine-based master developer Five Point Holdings LLC (NYSE: FPH).

Irvine, like much of South OC, has limited new industrial inventory. Most of the city’s existing industrial buildings, which totals about 11 million square feet in the airport area, and another 10 million square feet in and around the Spectrum, were completed in the 1970s and 1980s, according to real estate brokerage data.

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