— By Jace Gan, Executive Vice President, Colliers —
Before 2020, Orange County’s industrial base shrank due to developers opting to redevelop multifamily and creative office spaces. Historically tight market conditions limit the number of new leases, and rising interest rates price out many businesses looking to purchase a building. However, we are seeing a significant increase in industrial development across Orange County for the first time in a while. Orange County industrial properties have seen a pullback from institutions that were putting capital out the door. About 2.4 million square feet of new industrial space was constructed in 2022 — a significant increase over the 660,000-square-foot, five-year average.
Setting Pace
Most activity occurs in North County, which makes up 45 percent of OC’s industrial base. Irvine has remained the hub for more specialized uses related to aerospace, medical, etc. Key developments across the region are dictating the speed of future activity.
Goodman recently developed a 1.5-million-square-foot, four-building logistics center in Fullerton. The overall size is rare for the OC, and was 89 percent pre-leased before completion. Samsung took two buildings totaling 1 million square feet. Sprouts took 337,000 square feet in another building. Sares Regis Group is redeveloping an old 30-acre Boeing site in Huntington Beach, bringing 1 million square feet of new industrial space to West County. Cambro Manufacturing pre-leased 434,000 square feet. Epson America pre-leased a 234,000-square-foot building, which will be delivered with three additional buildings later this year.
Are we in a tenant or landlord market? It depends who you ask. Landlords think it’s a landlord’s market. Tenants think it’s a tenant’s market. Currently, it’s somewhat of a stalemate. If vacancy remains thin, landlords could still have the upper hand.
Weathering a Slowdown
OC industrial posted the lowest vacancy rate in its history during fourth-quarter 2022, at 0.9 percent. The industrial asset class will remain the asset class of choice. However, there will likely be a slowdown in sales until pricing and debt settle out. Gross activity — new leasing and owner/user sales — declined in 2022, down 21 percent compared to last year. Inflation is starting to taper off, but companies are still cautious about what the 2023 economy has in store. With limited options and historically high rental rates, Orange County is well positioned to withstand a slowdown.