Demand Remains Strong As Vacancy Falls

The Orange County industrial market closed mid-year on a positive note as net absorption recorded positive 305,100 SF. There is a strong demand for new industrial buildings as developers are challenged with finding available infill sites. Industrial product is expected to continue depleting due to many properties being sold as land for multifamily redevelopment or converted to creative office space.

The industrial market has evolved to handle niche technology hub industries and specialty retail. The market is focused on smaller value-add manufacturing buildings that have a large R&D component. As such, rents for industrial space tend to be higher in Orange County compared to neighboring markets.

Key Takeaways:

  • The vacancy rate decreased by 20 basis points to 2.5% this quarter. Vacancy stood at 2.8% one year ago.

  • Due to decreasing vacancy rates, asking rents increased to $0.84 PSF NNN, a 13.5% increase from one year ago.

  • Industrial demand was positive, recording 305,100 square feet (SF) of net absorption.

  • One project completed construction with only 195,500 SF remaining under construction.

  • As market conditions remain tight and quality industrial space remains scarce, asking rental rates are expected to rise by another 10% to 15% by the end of 2018.

Outlook:

The Orange County industrial market continues to move forward with positive momentum. With minimal increase in available supply, asking rental rates have climbed above 2008 peak values of $0.78-$0.80 PSF NNN. Despite positive market fundamentals, tenants are struggling to find future space options to meet their needs given the lack of available inventory.