Orange County Industrial Market and Outlook 2014

As the general Orange County economy picks up, so does the commercial real estate market.  This effect is seen across the board, first in the office and retail sector as more jobs are filled, and there is more disposable income than in the industrial markets.  In fact as of December, 2013, the Orange County local economy has recovered almost 62 percent of the jobs lost between the peak and bottom of this last recession.  As more stores and offices fill the distribution of products to service these businesses, the number of people must also increase.  We have seen this trend throughout the industrial market.

In relation to the pre-recession peak, the Orange County industrial market has recovered almost 92 percent of the lost occupancy during the recession (in terms of square footage).  However, as a very typical market condition, the rent growth recovery has lagged behind, recovering only about 31 percent from where it was at its height.  However, we do expect to see higher and quicker rent growth, as markets/spaces fill while demand continues to grow.  In fact, the availability of high-quality modern space, particularly in large blocks, is very limited, and tenants have looked to neighboring markets like the Inland Empire to satisfy specific requirements.  This is especially true with larger buildings of over 200,000 square feet.  As the cost (time, gas, wear, and tear on trucks) to distribute goods rises, many smaller spaces close to Orange County cities will gain in popularity.  This should drive rental prices up, especially since the vacancy rate remains historically low at 4.8%, and there is an expectation of net absorption occurring throughout 2014.

Overall, the buildings that are less than 200,000 square feet are what are currently driving Orange County’s industrial market.  The Anaheim Concourse Phase III project was expected to deliver almost Two Million Square feet of rentable industrial space to the market; however, this project was sold to an owner-user, which will dramatically cut into the supply of rental spaces and impact the overall current development pipeline.  This should positively impact rental growth for Class A product.  We can expect to see both lease and sales prices for this product class rise sharply over the next four to six quarters.  We also can expect a slight rise in the other product classes.  

Commercial Real Estate in LA with Joe Killinger

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