VIBRANT CONDITIONS CONTINUE. The Orange County industrial market recorded another stellar quarter, but as demand continues to outpace supply, options are becoming severely limited for Orange County’s diverse tenant base. Lease rates and sale prices are breaking through previous record highs across all size ranges and the region’s lack of available inventory continues to hinder overall transaction volume. As e-commerce and related logistics / transportation operators emerge as more significant players in this market, industrial demand and competition is at an all-time high.
VACANCY. The vacancy rate for industrial buildings fell to 2.34%, down from an already low 2.38% in the third quarter. Expect vacancy rates to stay low as the limited and shrinking inventory of quality buildings is quickly absorbed by a motivated pool of tenants. “Availability” will be a significant hurdle for tenants for the balance of 2017 and into 2018. For tenants and buyers, being prepared, being able to react and being willing to pursue “off market” deals will be keys for success in this competitive landscape. Market conditions will also provide landlords with the ability to push rents and potentially upgrade the credit of their tenants.
LEASE RATES. The average asking lease rate which incorporates all size ranges and sub-markets throughout Orange County is $0.85 NNN per square foot per month, a one cent per square foot increase from last quarter and a $0.05 cent per square foot increase from a year ago (6.25% annual increase). Although averages are difficult to rely upon, the fact is that rents in certain segments of the market are up 25-40% when compared with when the last five-year lease was negotiated on that building in 2012.
SALES PRICES. The Orange County industrial market’s average asking price at the end of the third quarter 2017 came in at just under $261 per square foot (average price tracks 1,000 square foot buildings and larger). While sale prices vary greatly depending on the size of the building and an average sale price doesn’t tell the entire story, this represents an increase of more than 11% from the third quarter of 2016. As interest rates move up we expect to see more modest levels of appreciation in 2018.
TRANSACTION ACTIVITY. The overall lack of available inventory has taken its toll on transaction volume (sales and leases) as gross activity in the second quarter dropped to 4.2 million square feet, down from 4.3 million square feet in the previous quarter. Highlights include Amazon’s lease of 238,000 square feet from Prologis at 6400 Valley View Street in Buena Park, Daisy Nails leasing 132,231 square feet at 3335 E. La Palma Avenue in Anaheim (Bentall Kennedy) and Primary Color leasing 204,314 square feet at 11130 Holder Street (former Van’s headquarters) in Cypress.
West Orange County Industrial Market Overview
In the third quarter of 2017, the West Orange County industrial market consisted of 1,692 buildings totaling 39,662,827 square feet and had an availability rate of 3.37%, which shows a decrease from the previous quarter’s figure of 4.91%.
