Continued strong demand for industrial space has reduced the already low inventory of vacant property by 25% over the last four quarters.
Orange County’s industrial market has been among the nation’s tightest before and since the recession. Average asking rents jumped 12% year-over-year for the largest annual gain since 2010 and rent increases in some renewals are topping 50%. But for most companies the big issue is availability and a dwindling number of choices. Statistically, 98 of every 100 Orange County buildings are occupied.
Lee & Associates surveys 8,328 buildings larger than 10,000 sq. ft. for a total inventory of 278 million sq. ft. This computes to an average building size of approximately 33,400 sq. ft. With a Q1 countywide vacancy of 7.9 million sq. ft. this translates to roughly 230 empty buildings, an increasing share of which is functionally handicapped or obsolete. Of course, availability in different sizes varies widely. Generally, larger buildings are in shortest supply.
The Airport and North County submarkets particularly are strained.
Net absorption of Airport-area properties totaled 246,013 sq. ft. in Q1. It was the fourth straight quarterly gain in the county’s largest submarket and brought the vacancy rate to 2.7%, down 30 basis points from the prior quarter. Using the average building-size math for 5,737 Airport-area properties shows an equivalent of 92 vacant buildings that are ready for occupancy, down 31% year over year.
The North County submarket with 116.6 million sq. ft. is even tighter. Following Q1’s net absorption of 207,606 sq. ft., the vacancy rate settled at 2.2%, off 20 basis points from the prior quarter and 100 basis points year over year. Using the same math and excluding obsolete space shows that of North County’s 3,226 buildings only 57 are vacant versus about 92 one year ago.
Continuing the point with the West County and South County submarkets reveals even fewer choices for companies based there.
In the 44.7-million-sq.-ft. West County submarket, there were 369,899 sq. ft. that went back on the market in Q1, driving up the vacancy rate up 50 basis points to 3.5%. Based on the average building size in West County this computes to about 60 vacant functional buildings.
Although it posted a modest 20,000 sq. ft. gain in absorption, South County’s vacancy rate was unchanged in Q1 at 3.5%, which is down 100 basis points from the same period last year. Using similar math shows a submarket with an equivalent of 30 buildings of suitable space.
If average asking rents continue increasing at the current pace they easily should surpass the pre-recession all- time high of 85 cents per sq. ft. triple net. That likelihood was improved as the latest Cal State Fullerton periodic survey of local executives shows the highest level of optimism in their outlook in the last four quarters.