OC’s Tight Industrial Market Leads to Bidding Wars, Rising Lease Rates

by Nellie Day

Troy L. Williams,  Newmark Grubb Knight Frank

Troy L. Williams, Newmark Grubb Knight Frank

Orange County’s industrial market highly favors the seller and landlord for properties of all sizes and conditions due to a tight vacancy rate and lack of available product. Vacancy rates have been on the decline, ending the second quarter of this year at 3.9 percent. Average asking rents rose to $0.83 per square foot – an increase of 9.2 percent over the 12-month span of the second quarter of 2014 to the second of quarter of 2015.

The county continues to hit new pricing highs as well, with many transactions receiving multiple offers. Full-price offers are oftentimes not enough anymore, as bidding wars have driven prices above the listing. Demand remains extremely strong for owner/user industrial buildings in North Orange County. Several recent smaller sales transactions in the 10,000-square-foot range have sold for around $170 per square foot. Most of these properties received multiple offers within days of going to market. Industrial buildings in this size range were trading for about $125 per square foot just three years ago.

On the leasing side, rates are escalating as product is in limited supply. User demand a year ago wasn’t as strong as it is now. This will likely continue to grow well into 2016. Although there is new development taking place in the larger size ranges, many of the older, traditional industrial buildings are being repositioned and renovated as creative office space, especially in the Irvine area.

Orange County is an infill market due to the lack of available land for development. The trend is now for developers to acquire industrial parks, after which time they renovate, reposition and zone them as industrial condos or planned unit developments (PUD) for sale to attract owner/users or investors. Many local developers have been particularly successful at this in the Anaheim area. Melrose Industrial Park and Turner Crossing Anaheim are two examples of developers repositioning older functional industrial parks and selling the buildings to owner/users and smaller investors. Both also received multiple offers after they were repositioned.

Larger distribution buildings are the hardest to find in Orange County. A portion of users who are not restricted to this region have relocated to other nearby areas like the Inland Empire due to a larger supply of new developments that are more economically priced. Panattoni’s Anaheim Concourse has been successful in meeting some of the large user demand.

Phase III of the project totals 490,355 square feet of space and is slated for completion later this year. The Anaheim Concourse project will eventually total 1.35 million square feet, with several of the buildings sold before construction was finished. The buildings for lease within the project have received strong demand, with several recently executed leases.

By Troy L. Williams, Senior Managing Director, Newmark Grubb Knight Frank in Newport Beach. This article originally appeared in the October 2015 issue of Western Real Estate Business magazine.

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