The Orange County industrial market got off to a good start this year after experiencing a sluggish year-end, posting positive net absorption of 690,726 square feet following a sluggish finish to 2014.
New construction picked up, with more than 600,000 square feet getting under way, combining for a total of 1.2 million square feet in the market. The development is a welcome sight in to the market due to the continued conversion of industrial sites into residential uses.
The sales market continued to be very active as buyers took advantage of low interest rates, driving sale prices higher with every transaction.
Landlords are taking advantage of tenants willing to pay higher lease rates for the right buildings due to the lack of available space on the market.
New construction, increased lease rates, and positive absorption make the outlook for this year strong.
The average asking lease rate at the end of the quarter was 70 cents per square foot, up 2 cents over the fourth quarter. That’s a good omen for the market, as lease rates were stagnant throughout last year. Rates have jumped due to the lack of available industrial space, giving landlords increased confidence.
M&W, R&D Up
The manufacturing and warehouse and research and development sectors closed the quarter at 63 cents and 92 cents per square foot, respectively, up 1 cent and 3 cents over the fourth quarter. Concessions continued to decline, as free rent and tenant improvements are no longer necessary to entice tenants.
The industrial sales market remained very active, with an average asking sale price of $160.41 per square foot, up from $152.35 in the fourth quarter. Lease rates and sale prices are expected to increase throughout the year as vacancy rates remain historically low. CBRE predicts that rates will continue to rise as demand is expected to outpace available supply.
The overall vacancy rate in the county was 2.4%, down from 2.7%. The Greater Airport Area posted the largest change, dropping from 2.6% to 1.8%.
Vacancy rates have stayed low for several quarters as lack of development and increasing residential conversions keep space tight.
The availability rate in the first quarter was 4.6%, down from 4.7%. The manufacturing and warehouse sector decreased from 4.4% to 4.3%, and the research and development sector increased from 5.5% to 6%. CBRE predicts availability to continue its downward trend.
The Greater Airport Area had the largest increase in activity, with 1 million square feet, up 54%. The tile and flooring industry helped bolster the positive net absorption figures during the quarter. For example, ceramic and porcelain tile distributor Eleganza Tile leased 98,000 square feet in Anaheim.
Anaheim Concourse
Development has picked up in the county as the third phase of the Anaheim Concourse began tilting walls for six buildings totaling over 480,000 square feet, and Southpark Business Center in Fountain Valley began construction on two buildings totaling 168,000 square feet.
CBRE predicts that absorption will continue to outpace completions this year.
Analysis provided by CBRE Research
