Signs of a stronger recovery for Orange County’s industrial market began to emerge in the first quarter following modest improvements during the fourth quarter.
While the market saw negative absorption and lowered asking lease rates during previous quarters, 2010 has seen a return to positive absorption and stabilized lease rates. This year began with more than 1 million square feet of newly absorbed space in the county, becoming the first quarter since 2008 to record absorption. In addition, gross activity of 3.2 million square feet was up about 43% from the previous quarter. These numbers ended an almost two-year streak of negative absorption and deteriorating gross activity.
The North County industrial submarket produced the majority of newly absorbed space at 653,937 square feet. Conversely, the South County submarket generated the least amount of absorption at negative 51,635 square feet, the only submarket to deliver a negative number.
Certainly, activity was fueled by the decline in average asking lease rates and average asking sales prices, which created new opportunities for tenants and buyers in the market.
In the first quarter, the industrial market saw a drop in average asking lease rates, becoming the eighth consecutive quarter of decreases. Average asking lease rates currently stand at 59 cents per square foot, down 2 cents from the fourth quarter.
At 79 cents per square foot, the South County industrial submarket maintains the highest average asking lease rate.
Average asking sales prices also declined, falling to $135.42 per square foot, an estimated 16% year-over-year decrease. But this is less than a $4 per square foot decrease from the fourth quarter’s closing per square foot of $138.99. Declines in prices are expected to continue to stimulate demand and activity in 2010.
The vacancy rate for industrial buildings decreased for the first time since the third quarter of 2007, while the rise in the availability rate was the smallest increase that the industrial market has seen since the first quarter of 2007. The overall vacancy rate was 4.7% this quarter, while the availability rate now stands at 11%, representing a gain of less than 1% from the fourth quarter.
The industrial market saw a drop in the vacancy rate by an estimated 8% from the fourth quarter’s closing rate of 5.1%.
Construction activity remained relatively dormant through the first quarter. Currently, North County is the only submarket with industrial space under construction. This includes three buildings in Anaheim, totaling more than 120,000 square feet, which are all part of the Canyon Point Business Park. After construction completed on a 52,840-square-foot property at the end of 2009, OC has yet to see construction begin this year. Projects continue to remain in the planning phases, yet developers are rethinking construction starts.
Analysis provided by CB Richard Ellis Group Inc.
