North Orange County’s industrial market saw a slight downturn in activity during the third quarter, with a typical summer slowdown that might have been re-emphasized by local business owners hesitant to consider deals because of uncertainty about the national economy.
There was good news amid the seasonal trend even with 29,474 square feet of negative net absorption. The markets for buildings larger than 100,000 square feet showed signs of a rebound during the third quarter, with a major sale and big lease that wrapped up shortly after the period ended.
The sale of 200 Boysenberry Lane in Placentia took 200,000 square feet off the market. Leases for an additional two buildings in Anaheim totaling about 425,000 square feet—in separate deals by Eleganza Tile Inc. and Straub Distribution Co.—were completed in early October.
Another positive trend is the overall “flight to quality,” with many tenants and buyers relocating or consolidating into Class “A” buildings at reduced costs. An example: the Canyon Point project in Anaheim, where two of the three class “A” buildings closed escrow in late September. The buildings, developed by Sares Regis and totaling roughly 90,000 square feet, had the highest sale prices the market has seen in more than two years. The buildings sold for about $117 per square foot, nearly 20% above the current average asking sales price in North County.
The recent activity and lack of new construction has North County faring better than the state and national averages on vacancy, with a rate of 4.4%. The area also is doing better on availability rates, now at 9%. The consensus is that rents are stabilizing at an average asking rate of 49 cents per square foot.
Attractive rates available with SBA loans likely will continue to spur activity. With a down payment of 10% and interest rates near 5%, the occupancy costs of owning a building are near the costs of leasing.
The recent increase in interest among cash-flush investors looking to buy quality assets below replacement cost also will spur activity. Investment and pension funds, private investors and private equity groups actively are pursuing listed and unlisted buildings.
National trends point to an increase in port activity as well, especially on the West Coast, due to increased imports from Asia. North County is an infill market in terms of trade, thanks to its proximity to the ports of Los Angeles and Long Beach, and that is likely to spur demand into 2011.
Long is an Associate in the Anaheim office of CB Richard Ellis.
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