At the close of the third quarter, the Orange County industrial market posted slightly higher activity figures than in the previous quarter.
But that didn’t translate into absorbed space, which was significantly lower than in the second quarter.
Gross activity increased by roughly 23% with North County being responsible for some 37% of it. Unfortunately, the absorption figures did not fare as well as gross activity figures, with the amount of negative absorbed space increasing by 21% from the second quarter’s negative 979,242 square feet. In all, the third quarter had negative 1.18 million square feet of absorption.
The industrial market continues to see both availability and vacancy levels increase as tenants are dealing with the weak economy by vacating buildings, downsizing space or not taking additional space. The vacancy rate increased about 11% during the third quarter—bringing it to 5.2%—while the availability rate increased by 4% to 10.7%.
West and South County were the only submarkets that saw decreases to the amount of vacant space from the second quarter. The West County vacancy rate decreased by about 18% to 4.1%, and South County saw a vacancy rate decline of 5%, going from the second quarter’s 6% to 5.7%.
The North County industrial submarket saw the most significant increase to its vacancy rate, increasing by nearly 22% during the third quarter to 5.5%.
Average asking sale and lease rates continue to decrease, which directly correlates to the increase in vacant and available space coming on line as property owners must compete with the vast oversupply of space available.
The average asking sale price in OC decreased by more than $9 from the second quarter to stand at $145.37 per square foot. The average asking lease rate decreased by three cents to stand at 62 cents per square foot.
South County saw the biggest drop-off in average asking lease rates last quarter, with a 7 cent decrease from the second quarter to 81 cents per square foot. Likewise, the airport area industrial submarket saw a 6 cent decrease in average asking lease rates from 75 cents to 69 cents.
Construction
In the third quarter, three buildings totaling 121,921 square feet broke ground in Anaheim. This adds to the 52,840 square foot build-to-suit project for Mitsubishi Materials USA Corp. in Fountain Valley and brings the under-construction total to 174,761 square feet in OC.
Despite the newest addition to the under construction inventory, developers continue to be hesitant about the construction of new speculative buildings, as there is an oversupply of buildings, especially in the South County industrial submarket. This submarket had the majority of its inventory built at the height of the commercial market a couple of years ago. It now has seen major reductions to both average asking sale prices and asking lease rates.
Data and analysis by CB Richard Ellis.
