In its entirety, the Orange County industrial market showed positive net absorption at the closing of 2013. Neighboring markets like Los Angeles and the Inland Empire, however, displayed a more robust recovery when compared to the Orange County industrial market. This reflects a less aggressive, but steady decrease in vacancy at about 4.3 percent — a number that has not been seen since the third quarter of 2008.
Most of the market’s leasing activity has been established by users in the less than 100,000 square feet range.
A few notable large transactions that took place in 2013:
• Cargill, Inc. moving into 184,438 square feet at Fullerton Crossroads
• Obey Clothing moving into 170,466 square feet on Michelson Drive in Irvine
• Cavotec Dabico US Inc. moving into 159,943 square feet at 5665 Corporate Ave. in Cypress Pointe
Rental rates steadily increased in 2013. The average quoted asking rate for available industrial space was $8.49 per square foot, per year at the end of the third quarter of 2013. This represented a 1.3 percent increase in quoted rental rates from the end of the second quarter, as rents were reported at $8.38 per square foot. Although lease rates underwent one of the sharpest declines in the US in the post-recession period, the decline is well in the past. Gains have been slow, but as the fundamentals recovery continues, the increase of lease rates will accelerate.
Several construction projects were also delivered and leased in the Orange County industrial market in 2013. Three buildings totaling 259,915 square feet were completed in the fourth quarter; four buildings totaling 411,800 square feet were completed during the third quarter; and two buildings totaling 92,078 square feet were completed in the second quarter.
Some of the notable deliveries include a fully occupied, 200,000-square-foot facility at 1111 S. Harbor Blvd. that was delivered in the third quarter, as well as another fully leased 101,800-square-foot building in Fullerton that was also delivered in the third quarter. Notable sales include the 127,030-square-foot building at 58 Discovery in Irvine that sold for $29.3 million. The property sold during the second quarter at a 6.2 percent cap rate. Cap rates were lower in 2013, averaging 6.24 percent, compared to the preceding year that averaged 8.09 percent. Most of the assets that were traded consisted of less than 100,000 square feet.
Although the Los Angeles and Inland Empire markets are recovering more rapidly due to the port traffic and impact from demographic trends, Orange County’s industrial market should supply enough inventory to ensure moderate positive absorption in 2014.
— By Janette Wehrmann, Vice President, Coldwell Banker Commercial Alliance in Irvine, Calif. This article first appeared in the January 2014 issue of Western Real Estate Business magazine.