Industrial development appears poised to make a comeback in and around Orange County in the second half of 2012 after a nearly four-year hiatus.
Close to 1.3 million square feet of new warehouse, manufacturing and distribution space is expected to break ground in OC by the end of the year, according to brokerage data and city officials.
Work includes large projects expected to be built on a speculative basis by developers in Anaheim and Brea, as well as a handful of small and midsize buildings developed for specific tenants in cities like Fountain Valley and Irvine.
There also are a few projects just outside the county lines that will target OC businesses as prospective tenants. Industrial brokers say at least 1 million square feet of new industrial buildings soon could move ahead in cities just outside OC such as Santa Fe Springs.
The volume of ground-up industrial construction now on the drawing board hasn’t been seen here since 2006, when close to 1.8 million square feet of new buildings came online, according to data from Newport Beach-based Voit Real Estate Services Inc.
Construction has slowed to a crawl since then.
Less than 500,000 square feet of industrial buildings has been built in OC on a cumulative basis since 2009, according to Voit’s data.
There hasn’t been a new, single-building industrial development larger than 100,000 square feet to go up since 2010, when a 375,000-square-foot warehouse and distribution building for Anaheim-based grocer Northgate Gonzalez Markets finished up work.
Last year also saw a trio of smaller-sized Anaheim buildings built by Irvine-based Sares-Regis Group Inc., totaling about 122,000 square feet, finish up work off State College Boulevard and a few blocks from the Orange (57) Freeway.
Sares-Regis’ Canyon Point project, which sold out in under a year, was the first speculative industrial project that OC has seen since the end of the last recession.
With land prices and construction costs remaining affordable amid a slowly improving local economy and increased user demand, the timing now appears right for at least a handful of new buildings to get started on a speculative basis, according to local industrial brokers.
“Class A buildings are in short supply right now, and many tenants now (on the market) want new buildings,” said Clyde Stauff, senior executive vice president for the Irvine office of Colliers International.
Stauff has been involved in several recent transactions in Santa Fe Springs involving developers looking to build more than 750,000 square feet of new industrial buildings.
Large projects there include an estimated 450,000-square-foot development that would replace two older, outdated buildings on a site just off the Santa Ana (I-5) Freeway near the Santa Fe Springs Swap Meet, about a mile outside OC.
North OC and the Mid-Cities markets contain more than their share of older industrial buildings.
More than 84% of all industrial buildings in OC were built before 1990, according to data from the Newport Beach office of CBRE Group Inc.
The lack of modern buildings is one reason why the vacancy rate for larger, high-quality buildings in and around OC is close to 2%, if not less, according to area brokers.
Vacancy rates on OC industrial space—which runs about 250 million square feet, more than twice the square footage of the local office market—are under 5% for the county as a whole, according to brokerage data.
Among the country’s 25 largest industrial markets, OC counts the second-lowest vacancy rate, trailing only the Los Angeles-area industrial market, which totals about 993 million square feet and is nearly 97% occupied, according to CBRE data.
On Tap
Among speculative projects on tap in OC, an Anaheim site just outside the Platinum Triangle purchased earlier this year by Newport Beach-based developer Western Realco LLC appears likely to be first to break ground.
Western Realco bought the 10.5-acre land site, at 2201 E. Cerritos Ave., from Pittsburgh-based Neville Chemical Co., which previously had a manufacturing building at the site but took it down about six years ago.
The developer is planning to build a 210,000-square-foot industrial building at the site on a speculative basis, with 30-foot ceilings and spacious loading docks among its features.
CoStar Group Inc. data show the project, located just off State College Boulevard and a few blocks from the Orange (57) Freeway, breaking ground in September.
The building will be offered for sale or for lease, according to brokers with the Newport Beach office of Newmark Grubb Knight Frank who have the listing for the property.
The Anaheim project is one of two ground-up speculative industrial deals that Western Realco has in the works for OC.
The company also owns a 4-acre parcel of land on Orbiter Street in Brea, near the headquarters of Beckman Coulter Inc., where it plans to develop a nearly 84,000-square-foot industrial building.
Among larger speculative projects, market watchers are keeping a close eye on the local office of Sacramento-based Panattoni Development Co., which could soon be moving ahead with its long-awaited Anaheim Concourse project on land once used by aerospace giant Boeing Co.
Panattoni has proposed building close to 900,000 square feet of speculative industrial space on eight or more buildings near La Palma Avenue in the Anaheim Canyon business corridor along the Riverside (91) Freeway.
The developer’s plans still need city approval, making an exact timeframe for groundbreaking unclear. Most industrial watchers expect the first buildings at Panattoni’s massive project to start work later this year, barring any complications.
Along with speculative development, there are also a handful of projects in the works that already have their occupants set.
A nearly 101,500-square-foot manufacturing and distribution plant in Fountain Valley is in the works for Yakult U.S.A. Inc., a maker of yogurt-like probiotic drinks.
Groundbreaking on the Yakult project—located along an 8.9-acre site on Newhope Street that once held a commercial nursery—is expected around the end of this month, according to Fountain Valley city officials.
Work is finishing up on a 26,000-square-foot industrial building for Irvine-based retailer Tilly’s Inc. in the Irvine Spectrum. The building will be used for warehouse space for the growing company, which earlier this year completed a nearly $108 million initial public offering.
