— By Erick Parulan —
The Orange County industrial market, along with Los Angeles and the Inland Empire, is experiencing a general decline in leasing activity as it navigates the post-pandemic landscape. Tenant demand and leasing have significantly slowed as occupiers adopt a more cautious approach to expansion, with some occupiers deciding to downsize and consolidate their industrial footprints.
Tenant occupancies continue to contract in the second quarter, with manufacturers, retailers and 3PL (third-party logistics) companies shedding unused space that may have been acquired during the pandemic frenzy, further increasing sublet availabilities. Orange County sublet availabilities surpassed 3.3 million square feet in the second quarter of 2024, raising total availabilities to 9.5 percent for the quarter. While pandemic-driven rental rates hit historic highs, they have since cooled amid softening demand. Many landlords now offer increased free rent concessions to attract new tenants.
Average asking lease rates have been on the decline in Orange County over the past two quarters. They decreased by 5.2 percent from the prior quarter, reaching $1.64 per square foot in second-quarter 2024. High market rents previously deterred many occupiers, but with rents on the decline, some tenants have adopted a wait-and-see approach to see where rates fall — a strategy that has hindered leasing activities.
Despite a national slowdown in sales due to higher interest rates and tighter lending, the Orange County industrial market remains resilient. Many investors are attracted to the market due to its prime infill assets, limited inventories and proximity to the ports. Investors who are in the market have been focused on assets with long-standing tenants, as well as high vacancy office campuses that are primed for industrial conversions. Furthermore, rental rates have not fluctuated as much as neighboring markets. They typically stay constant, which can be intriguing for investors seeking stable returns.
The Orange County industrial market posted more than $210 million in sales volume in the second quarter. REITs, led by Rexford Industrial, are very active within the market, holding a 46.6 percent marketshare of acquisitions in 2024. The surge in marketshare is primarily due to Rexford’s $1 billion Southern California portfolio purchase from Blackstone in the first quarter. Rexford has continued its spending with the $94.2 million acquisition of 1901 E. Rosslynn Ave. in Fullerton in the second quarter of this year. This activity has further bolstered the region’s industrial investment sales sector while landlords wait for increased interest.
Erick Parulan, Senior Analyst of Market Intelligence, Avison Young