Demand for Orange County industrial space remained healthy in 2019 as vacancy rates ended another year in record-low territory at 2.9 percent, fueled by a strong second-half net absorption.
The movement in the second half of 2019 was largely a result of the Fed’s decision to keep interest rates low, which provided assurance for buyers that had been on the fence. The attractive interest rates have led to steady price increases, however, adaptation has been slow. The average time on the market has increased by roughly 30 to 60 days from 2018. Many buyers also struggled with post-close deferred maintenance. With the typical industrial building in Orange County being construction in 1985, buyers are often challenged with renovation costs adding to their bottom lines.
Meanwhile, landlords in 2019 became more conservative in rent demands as average gains in asking full-service rents fell to 4.2 percent countywide, compared to 4.9 percent in 2018. Leasing activity remained steady with an average asking rate across Orange County of about $1 per square foot, triple net.
A handful of notable new construction projects advanced in 2019. In the fourth quarter, 10 buildings totaling nearly 1.2 million square feet were completed in North Orange County, including eight available spec facilities by Western Realco, ranging from roughly 42,000 square feet to 310,000 square feet. Panattoni completed and fully leased its four-building project totaling 230,000 square feet on South Van Buren Street on the Placentia-Anaheim border. Construction is underway on Shea Properties’ new state-of-the-art industrial center located at the former ITT site on Dyer Road in Santa Ana. The recently acquired property will offer about 500,000 square feet of Class A industrial space.
Though no one knows where 2020 will head, we’re cautiously optimistic this steady activity will continue in Orange County’s industrial base.
— By Scott Seal, broker and principal, Lee & Associates; Luke Hudson, principal, Lee & Associates; and Ryan Magarian, broker, Lee & Associates. This article first appeared in the February 2020 issue of Western Real Estate Business magazine.