The downward trend of Orange County industrial vacancy rates continued through the third quarter, dropping from 3.2% in the second quarter to 3%, the lowest vacancy rate recorded since the second quarter of 2008.
The demand for industrial product continues to grow, and the lack of supply and new development is pushing up values. That’s allowed for a big increase in prices, particularly for small-building sales.
The county’s average asking sale price increased 3% over the second quarter to $137.47 per square foot. The market is becoming more favorable to landlords as they gain leverage in negotiating rents and concessions with tenants.
North Orange County, with its significantly larger base, generated the most gross activity among the four submarkets, ending the quarter with more than 1.2 million square feet. It also had the lowest availability and vacancy rates, at 3.9% and 2.1%, respectively.
Notable transactions that contributed to the activity in North Orange County included a 144,000-square-foot lease signed by Allied Building Products in Anaheim and Nail Harmony’s purchase of a 97,000-square-foot building in Fullerton.
The county’s availability rate declined, ending the quarter at 5.6%. The downward trend is expected to continue. The quarter, after the second quarter’s 5% growth in average asking lease rates, remained stagnant at 66 cents per square foot. The North Orange County submarket experienced the biggest increase in average asking lease rates, ending the quarter at 57 cents per square foot, a 3-cent increase over the second quarter.
There was little movement in asking rents for the other three submarkets. West County and South County increased 1 cent to 60 cents and 85 cents per square foot, respectively, while the Greater Airport Area dropped 1 cent from the second quarter to 68 cents per square foot. Lease rates are expected to increase. CBRE Econometric Advisors forecasts growth of 9.8% in the next 12 months.
Development has picked up momentum since the end of 2012, and there’s currently more than 1 million square feet of industrial space under construction, all of it in the North County submarket.
The 864,794-square-foot Anaheim Concourse Distribution Center makes up the majority of the construction.
The lack of available land and competition with residential developers pose obstacles to additional industrial construction in other areas of the county. A 97,000-square-foot, build-to-suit for RPM Transportation was completed in Fullerton in the third quarter. Several projects remain in the pipeline and should be under way in the near future.
Analysis provided by CBRE Research
