Jack Haley, Lee & Associates
The Southern California Leading Economic Indicator is continuing its upward trend. It has been on the incline for more than four years, since the last decrease in 2009. This suggests a rise in economic activity over the next six months that will continue the solid fundamentals for the Orange County industrial market well into 2015.
A near record low industrial vacancy rate of 3.5 percent, along with an unemployment rate of less than 6 percent, has caused an aggressive search for viable land amongst developers. Numerous cities in Orange County have modified their industrial zoning regulations this year to permit a variety of additional uses that encourage new development. As a result, residential and retail property developers have been removing existing industrial buildings from current inventory.
Growing companies in Orange County are starting to feel the inventory squeeze. The lack of available space is making it difficult to meet a client’s needs. This is causing landlords, buyers and tenants to make extensive renovations to the few buildings left available to them. The limited supply has been a major factor in the increase in value for larger assets, as clients are willing to pay more for properties. Sale prices are up about 10 percent year over year.
Low interest rates have continued the sales frenzy, and with a lack of quality product to purchase, the industrial leasing market has seen an increase in activity during the third and fourth quarters of 2014. Landlords have benefitted from the low vacancy rate and active leasing market, which are contributing to increasing rents and smaller lease concessions.
There was about 1.1 million square feet of industrial space under construction in Orange County at the end of the third quarter. This includes a new 358,123-square-foot, Class A project in Brea by Western Realco and a 626,139-square-foot, Class A distribution buildings in east Anaheim by Panattoni Development. Many of the buildings have been pre-sold well in advance of completion, and at record prices. Needless to say, industrial real estate development and investments in Orange County are now considered low risk.
To sum it up, the industrial market in Orange County is firing on all cylinders and should continue to strengthen well into 2015.
By Jack Haley, Principal, Lee & Associates in Orange, Calif. This article originally appeared in the January 2015 issue of Western Real Estate Business magazine.