Manufacturers looking to expand in Orange County have their pick of hundreds of thousands of square feet of empty industrial space at prices not seen since the early 2000s.
Finding manufacturers looking to expand here is another matter.
“There’s more business optimism (from manufacturers), but I don’t see a real sense of urgency in (their) real estate decisions,” said Jeff Cannon, corporate managing director for the Irvine office of Studley Inc. “I’m not necessarily sure that we’re at the bottom.”
Manufacturers are shedding more local jobs this year with a projected 2.5% decline from 2009 to 150,540 workers, according to Chapman University in Orange. In 2009, manufacturing jobs declined by 11% from 2008.
Some jobs lost in the past two years won’t come back. Many were moved to lower cost states or countries, or eliminated entirely.
Manufacturers that have stayed—and could expand here—are specialty makers of aerospace, defense, medical device, technology, food and other products.
Next year could see a subtle uptick in manufacturing jobs, according to economists at Chapman University.
The county is projected to add about 1,200 manufacturing jobs, a gain of less than 1%.
That’s not likely to have a big impact on OC’s nearly 200 million square feet of empty industrial space, which is approaching a 7% vacancy rate.
But for those looking for space, things couldn’t be better.
Prices on buildings for sale are at their lowest point since 2002, according to a June report from Irvine brokerage 360 Commercial Partners.
In early 2008, the median sales price for an industrial building in OC topped the $200 per square foot mark. Now, it’s closer to $125 per square foot.
Recent Buys
Santa Ana’s Tenacore Holdings Inc., a maker of medical devices, recently bought a 37,500-square-foot building near the Costa Mesa (55) Freeway for $3.5 million, or $93 per square foot.
The buy tripled Tenacore’s previous space. The maker of finger probes, sensors and extension cables for medical monitoring gear has some 130 workers and plans to add 20 to 30 more.
Britain’s Bodycote PLC, which treats metals and other materials for makers of jets, autos and other products, used to run a factory at Tenacore’s new building.
In April, Aero Dynamic Machining Inc., a Garden Grove maker of aerospace parts, said it was expanding after buying another industrial building in its hometown.
The company, which makes precision parts for the airline industry and other commercial uses, bought a 50,625-square-foot industrial building at 7472 Chapman Ave.
The price was about $4.1 million, or $80 per square foot.
Aero Dynamic, which was founded in 1998, is keeping an existing 30,000-square-foot building on Monarch Street in Garden Grove.
Lower prices and interest rates, as well as more lending by banks, has made buying buildings the best option for some manufacturers.
For others, deals can be had on leasing.
At the end of the first quarter, the county’s vacancy level was up 12% from a year earlier, according to data from the local offices of CB Richard Ellis Group Inc.
The area’s availability rate—including space available for sublease, as well as space that’s currently occupied but on the market for lease—is about 11%.
If brokerage predictions for the rest of the year hold true, manufacturers could have at least until the end of this year to take advantage of current market conditions, which are at their most affordable levels in years.
The average asking lease rate for industrial space now stands at its lowest point in seven years, according to 360 Commercial Partners.
Landlords are asking 56 cents per square foot, per month, for industrial space, according to a sampling of local brokerage data.
That’s off some 30% from the peak of the market in early 2008, when monthly rents topped 80 cents per square foot.
Market watchers expect to see prices fall more, but not at the same rapid rate seen in the past two years.
Effective lease rates should decline at a slower pace for the remainder of the year, with prices bottoming out in the fourth quarter or early next year, according to a recent forecast from Newport Beach’s Voit Real Estate Services.
Voit expects industrial lease rates to fall to about 55 cents per square foot by year’s end. By the end of 2011, rates are projected to inch back up to 57 cents.
Warehouses
Unlike a few years ago, when the prospect of condominium developments pushed manufacturers aside, the biggest competition for space in the near term could be warehouse operators.
Traffic at the ports of Los Angeles and Long Beach, which drives the region’s warehouse space market, is on the upswing, according to recent reports.
The products that ship through the ports make their way to nearby warehouses, which could translate into more occupied space for owners of OC industrial buildings.
The Port of Los Angeles reported its second-best May ever, with imports up 12.5% from a year earlier and export traffic rising 5%.
At the Port of Long Beach, import traffic was up nearly 27% from a year earlier, while exports were up more than 14%.
Port officials say the increases are due in large part to an increase in empty containers being shipped back to China and other Asian countries, to be filled and sent back with goods in advance of the busy back-to-school and holiday shopping seasons.
Los Angeles reported more than a 50% increase in empty containers leaving the port last month, while Long Beach’s empties were up about 35%.
The largest industrial lease in OC during the first quarter was for warehousing. Solaris Paper Inc. signed a deal for about 274,000 square feet at 6750 Artesia Blvd. in Buena Park.
Solaris Paper, a Santa Fe Springs-based maker of paper towels, toilet paper, tissues and napkins, is expanding its operations into OC, and is using the Buena Park space to consolidate some of its distribution operations.
