Despite a greater than expected drop in leasing activity in the fourth quarter of 2016, demand for space remained strong enough to drive down the industrial vacancy rate deeper into record territory in each of the county’s four submarkets. The last three-month period of 2016 closed with 631,549 sq. ft. of positive net absorption, pushing down the countywide vacancy rate to 2.4%. When added to the 701,391 sq. ft. that came off the market in Q3 – offsetting weakness in the first half – net absorption for the year totaled 960,014 sq. ft. Historically, the volume of commercial real estate transactions drops off at the end of each calendar year, particularly so when there is the added uncertainty of a general election. But the 402 leases in Q4 totaled 32.6% less than the 597 average of fourth-quarter deals since 2011. Moreover, there were 36.6% fewer deals in Q4 than the 634 transactions in Q4 2012, when the previous election was held. The improving economy coupled with the continuing gradual shrinking inventory of industrial buildings has helped drive lease rates back virtually to pre-recession highs. There are 89 fewer industrial buildings in the OC inventory since 2008. The reduction totals about 4.5-million-sq.-ft., a 1.6% decline. Among the county’s four broad submarkets, whose inventories total more than 278 million sq. ft., demand has been greatest in West County. Net absorption in the last three quarters totaled more than 1 million sq. ft., driving West County’s vacancy rate down to 1.1%. Lee & Associates specialists in the field attribute West County’s strong absorption to the eight-city submarket’s comparatively low lease rates and its proximity to the 405 Freeway, the commerce-dense South Bay market and twin ports of Long Beach and Los Angeles. The North County submarket, the county’s largest with 42% of OC’s total 278-million-sq.-ft. inventory, posted 478,156 sq. ft. of positive absorption in 2016, closing out the year with a 2% vacancy rate. North County has lost 1.36 million sq. ft. of space largely to multifamily development since 2008. Lately, Shopoff Realty is angling to raze a nearly 400,000-sq.-ft. building in Anaheim to redevelop the 20-acre property on South Street near city hall with 530 homes and apartments. On the flip side, Western Realco has filed plans to develop an eight-building, 978,665-sq.-ft. project on the former Beckman headquarters site in Fullerton. The 74.3-million-sq.-ft. Airport submarket, which includes Newport Beach, Costa Mesa, Fountain Valley, Santa Ana and the Irvine Business Complex, lost four buildings totaling 474,226 sq. ft. to redevelopment, enabling its vacancy rate to fall to 3% despite putting 149,886 sq. ft. back on the market in 2016. Industrial Demand Shrugs Off Election-Year Uncertainty MARKET OVERVIEW (Change from last quarter) AVAILABILITY - 4.5% Up from 4.0% last quarter *All numbers are based on industrial buildings 10,000 sq. ft. and larger. VACANCY - 2.4% Down from 2.6% last quarter ABSORPTION - 631,549 SQ. FT. Down from 701,391 SF last quarter AVERAGE LEASE RATE - $0.87 NNN Up from $0.85 last quarter LEE & ASSOCIATES - IRVINE / NEWPORT BEACH / ORANGE INDUSTRIAL MARKET REPORT QUARTER IN REVIEW 4TH QUARTER 2016 The Orange County Industrial Market Report is published quarterly by the Lee & Associates’ Irvine, Newport Beach and Orange offices. 2017 Lee & Associates, Inc. C 1Q13 2Q13 3Q13 4Q13 1Q14 4Q12 2Q14 3Q14 AVAILABILITY RATE VS VACANCY RATE 4Q14 1Q15 Availability Rate Vacancy Rate 2Q15 3Q15 4Q15 1Q16 2Q16 Source: CoStar 18.0% 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% 3Q16 4Q16
Transcript
Despite a greater than expected drop in leasing activity in the fourth quarter of 2016, demand for space remained strong enough to drive down the industrial vacancy rate deeper into record territory in each of the county’s four submarkets.
The last three-month period of 2016 closed with 631,549 sq. ft. of positive net absorption, pushing down the countywide vacancy rate to 2.4%. When added to the 701,391 sq. ft. that came off the market in Q3 – offsetting weakness in the first half – net absorption for the year totaled 960,014 sq. ft.
Historically, the volume of commercial real estate transactions drops off at the end of each calendar year, particularly so when there is the added uncertainty of a general election. But the 402 leases in Q4 totaled 32.6% less than the 597 average of fourth-quarter deals since 2011. Moreover, there were 36.6% fewer deals in Q4 than the 634 transactions in Q4 2012, when the previous election was held.
The improving economy coupled with the continuing gradual shrinking inventory of industrial buildings has helped drive lease rates back virtually to pre-recession highs. There are 89 fewer industrial buildings in the OC inventory since 2008. The reduction totals about 4.5-million-sq.-ft., a 1.6% decline.
Among the county’s four broad submarkets, whose inventories total more than 278 million sq. ft., demand has been greatest in West County. Net absorption in the last three quarters totaled more than 1 million sq. ft., driving West County’s vacancy rate down to 1.1%. Lee & Associates specialists in the field attribute West County’s strong absorption to the eight-city submarket’s comparatively low lease rates and its proximity to the 405 Freeway, the commerce-dense South Bay market and twin ports of Long Beach and Los Angeles.
The North County submarket, the county’s largest with 42% of OC’s total 278-million-sq.-ft. inventory, posted 478,156 sq. ft. of positive absorption in 2016, closing out the year with a 2% vacancy rate. North County has lost 1.36 million sq. ft. of space largely to multifamily development since 2008. Lately, Shopoff Realty is angling to raze a nearly 400,000-sq.-ft. building in Anaheim to redevelop the 20-acre property on South Street near city hall with 530 homes and apartments. On the flip side, Western Realco has filed plans to develop an eight-building, 978,665-sq.-ft. project on the former Beckman headquarters site in Fullerton.
The 74.3-million-sq.-ft. Airport submarket, which includes Newport Beach, Costa Mesa, Fountain Valley, Santa Ana and the Irvine Business Complex, lost four buildings totaling 474,226 sq. ft. to redevelopment, enabling its vacancy rate to fall to 3% despite putting 149,886 sq. ft. back on the market in 2016.
Industrial Demand Shrugs Off Election-Year UncertaintyMARKET OVERVIEW(Change from last quarter)
AVAILABILITY - 4.5%Up from 4.0% last quarter
*All numbers are based on industrial buildings 10,000 sq. ft. and larger.
VACANCY - 2.4%Down from 2.6% last quarter
ABSORPTION - 631,549 SQ. FT.Down from 701,391 SF last quarter
AVERAGE LEASE RATE - $0.87 NNNUp from $0.85 last quarter
L E E & A S S O C I A T E S - I R V I N E / N E W P O R T B E A C H / O R A N G E I N D U S T R I A L M A R K E T R E P O R T
QUARTER IN REVIEW4TH QUARTER 2016
The Orange County Industrial Market Report is published quarterly by the Lee & Associates’ Irvine, Newport Beach and Orange offices.
2017 Lee & Associates, Inc. C 1Q13 2Q13 3Q13 4Q13 1Q144Q12 2Q14 3Q14
AVAILABILITY RATE VS VACANCY RATE
4Q14 1Q15
Availability RateVacancy Rate
2Q15 3Q15 4Q15 1Q16 2Q16Source: CoStar
18.0%
15.0%
12.0%
9.0%
6.0%
3.0%
0.0% 3Q16 4Q16
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BY SUBMARKET, INCLUDING SUBLET SPACEINCLUDING SUBLET SPACE
No warranty or representation is made to the accuracy of the foregoing information. Terms of sale or lease and availability are subject to change or withdrawal without notice.
LEE & ASSOCIATES - ORANGE1004 West Taft Avenue, Suite 150
Orange, California 92865(714) 647-9100
Industrial Members of the Lee & Associates Group of Companies-Orange County
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WESTCypress, Garden Grove, Huntington Beach, La Palma, Los Alamitos/Stanton, Seal Beach, Westminster
AIRPORTCosta Mesa, Fountain Valley, Irvine, Newport Beach, Santa Ana, Tustin
SOUTHIrvine Spectrum, Laguna Hills/Aliso Viejo, Laguna Niguel/Laguna Beach, Lake Forest/Foothill Ranch, Rancho Santa Margarita, Mission Viejo, San Juan Capistrano, San Clemente, Dana Point
OUTLYINGOutlying Orange County
SOUTH
AIRPORT
NORTH
WESTOUTLYING
MARKET FORECAST:Chapman University economists recently predicted that Orange County job growth will outperform the nation and state in 2017 with jobs in the construction and in-formation services sectors leading the way. Of concern, they said, was continuing decline in local housing affordability.
Robert LeiterFrank MejiaBryan MillerDavid NewtonChuck NobleJon PassafiumeBob SattlerScott SealJohn SonPeter Sowa David Tabata Dave Williams
