The Orange County industrial market experienced a slowdown in the second quarter, when it saw 217,848 square feet of negative net absorption.
The dip is relatively slight on a base of 251.6 million square feet of industrial space. The vacancy rate rose to 4.2% from 4.1% the prior quarter but fared better compared to 4.3% a year earlier.
Positive signs can be found in the John Wayne Airport area and South Orange County submarkets, both of which saw positive net absorption after struggling in the latter part of 2010 and the beginning of 2011.
Reversal in North OC
The biggest decline came in the North Orange County submarket, which had been a bright spot in the industrial market for several quarters. North Orange County accounted for all of the negative net absorption for the overall market in the second quarter, with 227,032 square feet. It was a dramatic turn from 534,187 square feet of positive absorption in the first quarter and took the North Orange County vacancy rate up to 3.5% from 3.3%.
West Orange County’s vacancy rate rose 3.2% in the second quarter from 2.7% in the previous period, showing a slight gain from 3.3% a year earlier.
More Deals, Less Space
The number of leases and sales rose in the second quarter, but the amount of space accounted for by those deals declined.
The industrial market saw leases and sales on a total of 2.4 million square feet of space, down 400,000 square feet from the prior quarter.
The majority of the decline came on leasing, which fell to 1.8 million square feet from 2.3 million square feet the prior period.
Sales increased to 648,056 square feet in the second quarter, an increase of 536,135 square feet in the first quarter.
Lease rates continued to show signs of stabilizing even with the slowdown.
The average asking lease rate remained held at 57 cents per square foot, marking the fourth consecutive quarter that it was unchanged for the market overall.
The airport area submarket saw a 5% increase to 60 cents per square foot.
Sale Prices Down
The increase in sales came as the average asking price declined overall in each submarket.
South Orange County saw the biggest decline on average asking rates to $150.66 per square foot from $170.67 the prior quarter.
The research and development segment accounted for 132,832 square feet of positive net absorption.
That was more than offset by 350,680 square feet of negative absorption for manufacturing and warehousing.
The airport area accounted for 170,430 square feet of positive net absorption.
South Orange County saw 20,958 square feet on the plus side.
North Orange County had 227,032 square feet of negative net absorption, and West Orange County added 182,204 square feet to the downward trend.
North Orange County’s vacancy rate rose to 3.5%.
West Orange County’s increased to 3.2%.
South Orange County’s vacancy rate fell to 6.6% in the second quarter from 6.7% in the prior period.
The airport area declined to 4.8% from 5.1%.
The overall availability rate fell slightly to 8.5% from 8.6% in the prior quarter. Availability has not been this low since the fourth quarter of 2008.
The availability rate for research and development space continued to climb, reaching 9.5% in the second quarter.
Manufacturing and warehousing space saw its availability rate fall to 8.3% from 8.6%.
Lease Rates Unchanged
The average asking lease rate in Orange County is unchanged at 57 cents per square foot, where it has stood for three consecutive quarters. That’s down two cents from a year earlier.
South Orange County continued to hold the highest average rent at 73 cents per square foot.
North Orange County had the lowest average at 49 cents per square foot.
Orange County has yet to see construction of new industrial product in 2011.
Speculative development has slowed considerably over the past three years and recently came to a halt.
Following the completion of four buildings totaling 496,921 square feet in Anaheim last year, no new space has broken ground.
Construction will continue to remain weak until core fundamentals can support speculative development.
Lower rent levels have contributed to the lack of new construction, which is expected to remain weak over the next several quarters as construction lending remains tight.
Analysis provided by CBRE Research.
