The Orange County industrial market remained on a healthy track through 2010, with approximately 13.1 million square feet of gross leasing and sale activity compared to 8 million square feet in 2009.
The number of deals nearly doubled in 2010 with 388 new leases and sales, a 46% increase from 2009.
The fourth quarter kept pace with the year’s trend, with 3 million square feet of leasing activity compared to 2.1 million square feet the prior quarter.
Sales accounted for 1.1 million square feet in contrast to 486,000 square feet in the prior quarter.
Manufacturing and warehouse space represented the majority of the quarter’s leasing activity with a total of 2.7 million square feet.
Research and development space ended the quarter with 345,000 square feet of activity.
Vacancies Down
The solid activity for industrial properties during the fourth quarter 2010 led to a decline in the vacancy rate, down to 3.9% from 4.4% in the prior quarter and 4.9% a year ago. Availability rates also dipped, moving to 9.2% from 10.6% in the prior quarter and 10.7% a year ago.
The fourth quarter saw a total of 1.5 million square feet of positive net absorption, accounting for slightly more than half of the 2.9 million square feet of positive net absorption for the whole year.
The North County submarket saw the most activity, posting 1.1 million square feet of positive net absorption in the fourth quarter.
The county’s strong fourth quarter helped it finish 2010 as one of the few industrial markets in the nation with positive net absorption.
The county’s industrial market closed out the year with an overall 1.5 million square feet of positive net absorption in the fourth quarter.
Gross activity in the fourth quarter was 4.1 million square feet, accounting for 32% of 2010’s gross absorption.
The North County submarket accounted for the majority of the County’s positive absorption with 1.1 million square feet, while South County experienced some negative net absorption with 128,128 square feet.
The overall vacancy rate in OC decreased to 3.9% from 4.4% in the third quarter.
North County led the way with a vacancy rate of 3.4%, down from 4% the previous quarter and the 5.3% mark a year earlier.
South County recorded an increase in its vacancy rate to 6.3% in the fourth quarter from 5.9%.
The overall vacancy rate for manufacturing and warehouse space declined to 3.8%, while the rate for research and development dipped to 4.5%.
A decline in average asking lease rates and sale prices helped fuel the sales and leasing activity. The price cuts created opportunities for tenants and buyers in the market.
Fourth-quarter asking lease rates remain unchanged from the third quarter at 57 cents per square foot but dropped from 61 cents at the end of 2009.
Asking Less on Sales
The average asking sale price for OC industrial buildings continued to fall.
The overall asking price dropped to an average of $123.19 per square foot in the fourth quarter, the lowest level since 2005.
South County continues to command the highest average rent at 72 cents per square foot. The North County submarket offers the lowest at 51 cents per square foot.
Manufacturing and warehouse space posted a one-cent increase in the third quarter, while research and development space saw a decline of five cents to $81 cents per square foot.
Signs of Stability
Although rates continue to fall, the pace of declines is showing signs of stability.
Four buildings came to market in the fourth quarter, totaling 496,921 square feet in new construction.
All of the new buildings are located in the city of Anaheim.
Construction likely will remain weak in the near term.
Stubbornly high availability rates continue to pressure rents, which will probably delay future construction projects.
Rent growth will remain weak over the next several quarters and construction lending will remain tight.
Consequently, it will be a few years before market momentum is back and significant construction activity resumes.
Analysis provided by CB Richard Ellis Research.
