— By Nick Krakower and James deRegt of SRS Real Estate Partners —
The fourth quarter of 2024 revealed significant trends across key indicators in Orange County’s industrial market. For starters, the county’s industrial market vacancy rate was 3.9 percent at that time. This figure represents a continued trend of gradually increasing vacancies, which has consistently occurred over the past eight quarters.
The uptick in vacancies can be attributed to increased availability in larger distribution centers and evolving tenant requirements. North County had the largest increase at 4.5 percent. While a 3.9 percent vacancy shows OC’s industrial market remains relatively tight, there is a countywide availability of more than 16 million square feet.
Net absorption for the quarter came in at -900,000 square feet. Sectors that rely heavily on logistics and distribution were most impacted, as the move to less expensive space in the Inland Empire continues. Despite the negative figure, leasing activity remains high with quarterly averages of more than 2 million square feet. Net absorption is expected to stabilize with the development pipeline slowing down.
Development activity remained strong with 2 million square feet of new industrial space in the pipeline. This new inventory focuses on state-of-the-art facilities designed to meet the growing demands of ecommerce. Projects from Goodman, Rexford and Dermody are either on the market or set to come to market in the first quarter.
Asking lease rates for industrial properties averaged $1.59 per square foot on a triple-net (NNN) basis, reflecting a modest decrease from the previous quarter. Looking forward, rates will stabilize when vacancy and availability normalize. With solid demand and less construction, the second half of the year should show improvement. Major leases were signed by Karney and Dermody in the quarter.
The fourth quarter of Orange County’s industrial market highlighted a dynamic landscape with a rising vacancy rate, negative net absorption, significant new construction and decreasing rental rates. As the market transitions from its post-pandemic boom, investors are still exercising some caution, especially since a pause in interest rates may continue in the short-term.
— By Nick Krakower and James deRegt, Senior Vice Presidents, SRS Real Estate Partners. This article was originally published in the February 2025 issue of Western Real Estate Business.