There are signs of life for development in Orange County’s aging industrial market.
Multiple local commercial developers, including Irvine-based Sares-Regis Group, Aliso Viejo-based Shea Properties, and Newport Beach-based Western Realco and Panattoni Development Co. are involved in a variety of new or planned projects across the region.
Assuming the entitlement process goes smoothly and market conditions continue to be strong, the projects could bring at least 3 million square feet of industrial product to the area.
That’s not that much construction compared to nearby markets where development is in overdrive; about 20 million square feet worth of industrial buildings were being built in the Inland Empire in the first quarter, for example.
Still, it’s a healthy figure compared to the relative dearth of recent industrial construction here.
Just 4.8 million square feet of industrial product has been completed in OC since early 2009, according to data from the Irvine office of brokerage JLL.
About half of that has been built since 2015 (see chart, page 35).
The modest amount has added only about 2% to OC’s base of about 245 million square feet of industrial space.
Old Age
Without much in the way of new construction recently, the area now has one of the oldest bases of warehouse and distribution buildings of any large U.S. market.
Buildings here average about 39 years in age, tied for 12th-oldest of large U.S. industrial markets, according to a March report by CBRE Group Inc.
The Inland Empire’s 454 million square feet of buildings, by comparison, have an average age of about 20 years, the youngest industrial market in the country.
Age matters, in terms of efficiencies and building uses.
Older product is “becoming increasingly obsolete,” inventory having clear heights of less than 20 feet, “well below logistics tenant requirements,” the CBRE report said.
“Warehouses built since 2008 are generally three times larger than older ones and account for only 4% of the nation’s total number of buildings,” the report said.
Beckman Boom
A few notable projects in the works or the planning process could help modernize the area’s industrial base.
The first coming to market is Beckman Business Center, a seven-building project in Fullerton that will total about 935,000 square feet.
Its first buildings, on 44 acres that previously held the headquarters of medical testing company Beckman Coulter Inc., are scheduled to open in a few months. No leasing or sales activity has been disclosed.
Executives with Newport Beach-based Western Realco said in April that “tenant interest is strong and lease rates continue to rise as the vacancy rate stays at a historic low.”
Western Realco Director of Acquisitions Jeremy Mape said that, “Even with interest rate movement, the user sale demand continues to be robust, pushing purchase prices well past the previous peak.”
Rising prices for industrial buildings, particularly new ones, were demonstrated in a deal completed in May involving a 143,930-square-foot, fully leased building in Anaheim that opened this year.
The 1730 S. Anaheim Way property sold for $33.1 million, or $230 per square foot, the highest square footage price on record for an area industrial property 125,000 square feet or more, according to data from real estate market tracker CoStar Group Inc.
The building’s used by San Jose-based electrical contracting firm Rosendin Electric Inc. for its new Southern California headquarters and was bought by Los Angeles-based institutional fund manager American Realty Advisors.
A venture between Panattoni and fellow Newport Beach-based developer Batcheller Equities built the Rosendin facility in Anaheim.
Panattoni started work last month on its latest project in the city, four buildings along the Anaheim-Placentia city line that will total 232,000 square feet when completed next year.
It’s the largest industrial project to break ground so far this year in OC, not factoring in wholesale redevelopment of existing projects, such as Hines’ work under way at 515 E. Dyer Road, a 414,309-square-foot building on nearly 18 acres in Santa Ana.
Boeing Boosts
Western Realco’s Beckman Business Center will be the largest industrial project built in OC since the completion of the 1.4-million-square-foot Anaheim Concourse project Panattoni built three years ago on the former Boeing Corp. campus.
A Huntington Beach Boeing site could soon be home to one of the next large area industrial developments.
In April the Business Journal was first to report that the aerospace giant was looking to offload the nearly 30-acre Huntington Gateway site it owns near the intersection of Bolsa Chica Street and Bolsa Avenue.
The site now holds an office building and vacant land, but plans are that it be converted to industrial uses by its next owners; the land appears large enough to hold nearly 500,000 square feet of space.
A buyer hasn’t been announced, but real estate sources familiar with the site point to Sares-Regis as the most likely candidate. Sares-Regis has worked with Boeing in the past and is master developer of the Douglas Park campus next to Long Beach Airport, a former Boeing site that now holds a variety of industrial, retail, hotel and other buildings.
Shea Properties is also tied to at least one area project under way, a nine-building industrial development totaling 495,667 square feet in Santa Ana that will be on 25 acres near the Costa Mesa (55) Freeway and Hines’ redevelopment project at 515 E. Dyer.
The 25-acre development site, at 666 E. Dyer Road, previously held about 360,000 square feet of industrial space owned and used by ITT Corp., a White Plains, N.Y.-based company that makes a variety of high-tech products.
The buildings were razed about a year ago to make way for a project to build one of the first sets of large industrial buildings in the vicinity of John Wayne Airport in years.
Numerous real estate sources point to Shea Properties as the likely developer of the project, though a deal to buy the site has yet to be confirmed by Shea or ITT.
Rents are Right
Despite having one of the country’s tightest industrial markets, with vacancy rates now hovering around 2%, and a commensurate jump in rental rates over the past few years, it’s been a tough go for area developers looking for land to build. Scarce land and expensive prices have made projects hard to justify financially.
Rising rents are helping to make the decision to build speculative projects easier, according to recent CBRE data.
Land costs can be approximately 50% of a large project’s cost in some of Southern California’s biggest industrial markets, pushing costs past $160 per square foot for larger projects, according to CBRE.
Still, rents developers can charge for new projects have continued to move up in the past few years and are now likely more than 20% beyond break-even rents, thanks to a lack of modern area logistics facilities, the brokerage’s report said.
