Vacancy Surges Due to Building Repositioning
- The vacancy rate rose 110 basis points to 2.4% due mostly to a single move out. This one million square foot building is being repositioned to modern industrial space and has led to a 100 basis point increase in the vacancy rate for the Mid-Counties market.
- Space givebacks continued for the second consecutive quarter with 1,252,700 square feet of negative absorption. This was attributable mostly to a single building in the 500,000 square foot and larger category.
- Average rents increased by $0.02 per square foot (PSF) triple net (NNN) over the previous quarter to end at $0.80, a new high-water mark for this region. Over the past 12 months, asking rents have increased by $0.06 PSF NNN or 8.1%.
- Sales and leasing activity totaled 1,088,300 square feet this quarter, which is significantly lower than the 2,673,300 square feet reported in the first quarter of 2018.
Mid-Counties Industrial Market:
Despite an increase in the vacancy rate this quarter, most small and mid-sized users of industrial space in the Mid-Counties still face the prospect of few expansion options in the region. Land remains scarce and there is limited development activity on the horizon. Asking rental rates are expected to continue to rise in the near term as demand for quality industrial space exceeds supply.
There is a growing softness in demand for larger buildings in the Mid-Counties due to tenant migration to the Inland Empire. There is a limited supply of infill industrial users seeking last-mile distribution or who absolutely need to be at the center of Southern California. Industrial landlords who can make the necessary improvements to their aging buildings to attract these tenants will benefit and those who do not will see their buildings sitting vacant for extended periods of time.