Industrial space supply in Orange County continues to dwindle as demand keeps growing.
Industries such as construction, aerospace and distribution are looking for and absorbing space, and the demand is driving rents up, specifically for class A distribution space, a segment in which rates have risen roughly 10% throughout Orange County over the past year.
Rates Up
Certain markets, such as the Greater Airport Area, have seen lease rates increase by nearly 20% over the past year because the supply of buildings is virtually nonexistent, especially for those 100,000 square feet and larger. Many buildings, due to the demand, are being tied up even before they hit the market.
Gross leases and user sales have remained between the 2 million and 3 million square feet since early 2010.
The first quarter kept that pace, with 2.8 million square feet of gross activity, an increase of nearly 360,000 square feet over the fourth quarter. The majority of the activity occurred in North Orange County, which generated 1.12 million square feet. Contributors to the activity were a 123,625-square-foot building purchased by Precision Plastics in Anaheim and a 125,055-square foot lease signed by Wesco Distribution in Buena Park.
The West Orange County submarket also experienced notable deals during the quarter, with Chipman Co. leasing an 84,195-square-foot building in Garden Grove and Sika leasing 63,016 square feet in Cypress.
CBRE Econometric Advisors forecasts that with the strong tenant and user demand, absorption will outpace the minimal supply in the county by year-end.
Vacancy has stabilized, with the rate staying in the 3% range since mid-2011. The first quarter ended with a 3.1% rate, down from 3.4% in the prior period and 3.6% a year earlier. Net absorption continued on a positive trend, with the first quarter generating 786,260 square feet, an increase of 215,000 square feet over the previous quarter.
Availability
Overall availability decreased to 6.1% from 6.6% in the fourth quarter. The drop stems mostly from decreased availability in North Orange County, where 1.12 million square feet of the quarter’s gross activity occurred.
North OC will see more space become available later this year.
The first two phases of the 864,794-square-foot Anaheim Concourse Distribution Center remain under construction. Plans are still under way to break ground on the third phase this year.
An 83,078-square-foot manufacturing-and-warehouse building was recently completed by Newport Beach-based Western Realco.
Developers are becoming increasingly more optimistic about the market and are starting to plan more speculative buildings.
Finding available land that’s not being converted into residential space is a challenge for commercial developers. Some projects in the pipeline should gain some traction in the next year due to the scarcity of buildings.
Analysis provided by CBRE Research.
