Vacancy Increases In Third Quarter
The Orange County industrial market closed the third quarter with net absorption recording -82,800 SF. Much of this negative movement stemmed from the Royalty Carpet Mills closure. There is strong demand for new industrial buildings as developers are challenged with finding available development opportunities. Industrial product is expected to continue depleting as many properties are being sold as multifamily redevelopment land or creative office space conversion.
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.
- The vacancy rate increased 20 basis points to 2.7% during the third quarter. Vacancy stood at 2.6% one year ago.
- Asking rental rates increased 14.5% from one year ago to $0.87 per square foot (PSF) triple-net (NNN). Industrial demand recorded -82,800 squre feet (SF) of net absorption. Much of this negative demand was in the Airport Area submarket.
- Construction activity grew during the third quarter totaling 1.3 million SF.
- Though demand was negative for the quarter, market conditions remain tight and quality industrial space is scarce. Asking rental rates are expected to rise by another 10%-15% by the end of 2018.
Despite the drop in absorption during the third quarter, 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.