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Orange County’s Industrial Demand Fuels Rent Growth

The industrial market in Orange County remains strong as demand continues to far outweigh supply. Vacancy throughout the region remains at historic lows, staying below 3 percent for the 13th consecutive quarter through the third quarter of this year. The largest submarket, North Orange County, is also the tightest submarket with a 1.2 percent overall vacancy. As an infill market, we do not anticipate significant increases in vacancy within the Orange County industrial marketplace for the foreseeable future, despite the new developments recently delivered, planned or under construction.

Jeffrey Read, Newmark Knight Frank

There are several significant industrial development projects in various stages in the county. This is welcome news by users seeking to upgrade and expand into modern facilities while maintaining local operations. The first is a 30-acre redevelopment site in Huntington Beach that was purchased by Sares Regis Group earlier this year. Sares Regis is expected to begin construction shortly, with plans to deliver more than 600,000 square feet of new product in late 2019. Shea Properties recently began construction on Shea Business Center in Santa Ana, which is planned for nearly 530,000 square feet and a completion date in 2019. Western Realco is also nearing completion of Beckman Business Center, a 900,000-square-foot, seven-building industrial project in North Fullerton at Harbor and Lambert. Finally, Panattoni Development Co. will be completing a 232,000-square-foot, four-building Class A industrial project on the border of Anaheim and Placentia in early 2019.

As referenced within our third quarter NKF Orange County industrial market report, the supply demand dislocation in the market will likely lead to continued rent growth. The average asking rent across all property subtypes during the third quarter was $1.10 per square foot. This was up 7.5 percent from one year ago and 50.4 percent over the past five years. This is unprecedented territory for lease values here. The general warehouse/distribution product type led other property subtypes in annual rent growth with a 12.4 percent year-over-year increase.

Orange County continues to be the gold standard for places to live, work, shop and be entertained. As unemployment hovers around 3 percent, we expect the industrial sector will continue to boast healthy fundamentals that ultimately benefit landlords. Users will continue to be challenged as rents rise and quality, available space remains scarce.

By Jeffrey M. Read, executive director, Newmark Knight Frank. This article first appeared in the December 2018 issue of Western Real Estate Business magazine. 

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