The Orange County industrial market remained tight at the end of the third quarter, which has been the theme for the past 12 to 18 months as vacancy declined. Market conditions remained overly favorable to owners with available space.
The absence of available class A product meant class B properties continued to receive increased interest each succeeding quarter as tenants have been essentially forced to accept available options. Activity levels were sluggish during the quarter, primarily due to scheduling constraints with decision makers, despite tour activity and general interest in listings being steady.
The overall industrial market performed well as stable demand yielded a positive net absorption of 202,827 square feet.
The average asking lease rate jumped significantly as landlords remained bullish on rents, knowing tenant options are limited at best. Some bumped up asking rates by 3.5% to 4%.
The average asking lease rate at quarter’s end was 84 cents per square foot, up 15.1% year-over-year. The steady upward climb of asking rates reached record highs due to extreme availability constraints, leaving tenants little leverage in rent negotiations.
South OC
The South Orange County average asking lease rate has increased 15.9% over the past two years, and there has been similar growth in the other submarkets throughout the region. Asking lease rates have soared past the previous peak in 2007 by 7.7%, with no end in sight. That trend is likely to continue until there is pushback from tenants or a change in the local economy. Landlords’ concession packages remained minimal, with little to no free rent offered. The typical concession package for a three- to five-year lease was refurbished tenant improvements, such as paint and carpet, and one to two months of free rent, maximum.
The average asking sale price at quarter’s end was $192.83 per square foot, up 7.4% year-over-year and surpassing the previous peak, reached in 2007, by 9%. We project the asking sale price to steadily increase due to limited purchasing opportunities for buyers.
Apparel, Tech
Apparel, technology, manufacturing, third-party logistics, consumer products and food-related companies propelled gross activity and positive net absorption. Most of those industries hold long-term leases and have continued to expand. Matco-Norca, a wholesaler of plumbing supplies, expanded into 70,200 square feet in La Palma. Activity remained hot for product smaller than 50,000 square feet, while interest for larger product slowed.
The slight drawback for larger tenants was the location of the buildings, which were concentrated primarily in South Orange County, and many of the tenants were hesitant to move due to the distance from the ports. Market retention remained high, and renewal activity accounted for 26% of leases signed in the quarter. Orora North America, a manufacturer of packaging products, renewed at its location in Buena Park in one of the largest deals of the quarter. Solid activity from multiple industry sectors helped gross activity and net absorption reach 3.1 million square feet and 202,827 square feet, respectively.
Analysis provided by CBRE Research
