The North Orange County/Central Orange County market followed a strong end to 2010 with a continued brisk pace in the first quarter.
The industrial market has come a long way from the ups and downs of last year, with North County leading the way. It did better than national averages on vacancy and absorption, with manufacturing and warehousing representing the bulk of the activity for the entire market in the first quarter.
Offices accounted for much of the rest.
The sales market is trending toward stability in the industrial sector.
Leasing remains somewhat uncertain.
With a base slightly more than 109 million square feet, the North County industrial market saw vacancy rates decrease to 2.7% from 3.3% in the fourth quarter. The rate is down from 4.7% a year earlier, meaning it fell by nearly half since the first quarter of 2010.
The improvements came largely on positive net absorption of 696,964 square feet in North County industrial space, accounting for nearly the entire total in the industrial segment.
The average asking lease rate for industrial buildings 10,000 square feet and bigger declined by two cents from the fourth quarter to $0.49 triple net per square foot.
Continued declines in vacancy rates point to the potential for moderate rent hikes toward the end of the year and into 2012. The trend would first be seen among class “A” buildings, where availability is becoming scarce.
There were several significant leases in North County at the beginning of the year including States Warehouse leasing 132,680 square feet in Buena Park. Fulfillment Corporation of America leased 72,275 square feet in Brea, and Oakwood Construction and Restoration Services Inc. took 43,428 in Anaheim.
Construction of new industrial buildings has slowed considerably in the past three years. Following the completion of four buildings totaling 496,921 square feet in Anaheim last quarter, no new space has broken ground.
Construction will continue to remain slow until lease rates and other fundamentals can support speculative development, but some developers have come back to the market seeking opportunities to get ahead of the curve.
There is reason for optimism on the industrial market for the rest of the year.
The unemployment rate in Orange County declined to 8.9% this quarter from 9.5% in the fourth quarter. The jobless rate here is trending steadily with the national outlook, which decreased this quarter to 8.9%.
Unemployment here also continues to be far below California’s statewide rate of 12.2%.
Employment growth coupled with a strengthening local economy and decreasing vacancy rates appear poised to help keep the local industrial market healthy.
Kim is an Associate in the Anaheim office of CB Richard Ellis.
