Last year ended on a sour note, but Orange County’s industrial market bounced back nicely in the first quarter, garnering plenty of attention as occupancy gains improved. With an ever-shrinking industrial base and no significant new product delivered, rents continued to increase.
The supply left behind by several unexpected move-outs benefited a diverse tenant mix and pushed gross activity to 2.2 million square feet.
The market, considering inventory challenges, remained desirable due to solid fundamentals. It should perform well, with rent growth on par with last year and solid positive net absorption.
Strong demand and lack of supply pushed lease rates to 89 cents per square foot, a 1.1% increase quarter-over-quarter. Year-over-year lease rates jumped 3.5%, offering plenty of opportunity for landlords to achieve higher rents.
Solid tenant demand further squeezed the market. With rents at historic highs, landlord concessions were diminished due to competition among users. CBRE EA predicts lease rates will grow 7.4% this year, as an increase in inventory seems doubtful.
Sale prices remained at an all-time high, despite flat quarter-over-quarter growth, closing the quarter at $202.92 per square foot. Desirable inventory, combined with top credit tenants, resulted in the closing of several large investment deals. Sale prices should grow this year as purchasing prospects dwindle.
The vacancy increase in the past two quarters helped many tenants expand or find homes. The vacancy dropped due to organic growth, but was up from 1.2% year-over-year.
Vacancy should remain relatively flat throughout the year as pending move-outs fill quickly.
Despite more available industrial supply over the past nine months, the market remained supply-constricted due to solid user activity. CBRE EA predicts availability will reach 5% by year-end as completions outpace occupancy gains.
Third-party logistics and e-commerce-related users shouldered the load. Apparel remained strong with several large renewals.
Occupancy gains came from several large deals in North OC and the Greater Airport Area after two consecutive quarters of losses. Notable leases included Volcom renewing their lease for 164,000 square feet in Irvine Spectrum, while Engineering Floors renewed their 127,000-square-foot space in Fullerton. CBRE EA predicts that net absorption will reach over 952,000 square feet this year due to anticipated demand.
With no new starts, development levels dropped, closing the quarter with 934,754 square feet under construction.
Only a 170,000-square-foot building was delivered, preleased to Rosendin Electric. The ITT Canon site now has a site plan, which comprises 497,745 square feet. Construction is slated to begin in the third quarter.
— Analysis provided by CBRE
