LANDLORDS AWAIT FULL "RETURN TO OFFICE"

DEMAND FOR SPACE INTENSIFIED IN 2021

Demand for industrial space in Orange County, already one of the hottest markets in the country, continued to set records in 2021.

Out of a total inventory of 274.1 million SF surveyed by Lee & Associates, only 5.8 million SF are vacant. 

Year-over-year rent growth averaged a record 16% countywide in 2021. Net absorption in 2021 totaled 1.8 million SF. It was the most tenant growth in six years, during which average rents have increased 83% countywide.

Orange County industrial space has been in short supply for years.  And with a growing number of companies seeking to be in close proximity to the twin ports of Los Angeles and Long Beach, demand has intensified.

Three of the four submarkets posted net growth in 2021, but North County, which accounts for 42% of OC’s industrial base, was 457,642 SF in the red.  

The Airport submarket reported 1.3 million SF of net absorption in 2021. It was the most growth since 1999 in the 72.9-million-SF submarket. Year-over-year rents increased 23%.

There was 598,000 SF of tenant expansion in South County in 2021, the most since 2014, which pushed down the vacancy rate in the 42.5-million-SF submarket to 2.9%. In South County, rents gained 9% in 2021 and are the costliest in Orange County, averaging $1.46 per SF.

Net absorption in North County was negative in the fourth quarter by 183,537 SF, but because the submarket’s inventory fell nearly 1.5 million SF in the last quarter the vacancy rate settled at 1.3%.  

There was 347,753 SF of net absorption in West County in 2021, a turnaround from the contraction of 741,041 SF in 2020. But net absorption in Q4 was negative 96,406 SF.

The biggest lease in the fourth quarter was to Atlas International for 100,922 SF of space at 5555 McFadden Avenue in Huntington Beach. The 10-year-lease has a $1.25 per SF start rate. The rehabbed building has 11 loading docks.

The three largest sales in the fourth quarter were for buildings in North County.  The largest was Oaktree Capital Management’s purchase of a 123,972-SF warehouse building from CapRock Partners at 2009 Raymer Ave., Fullerton, for $32.2 million, or $259.33 per SF.  Rexford Industrial Realty of Los Angeles purchased a 106,000-SF building on East Coronado Street in Anaheim for $28 million or $264.15 per SF. The Blackstone Group acquired a 102,000-SF building at 1500 East Walnut Avenue in Fullerton for $35 million or $348.04 per SF.

Click here to read the full report.

HEALTHY TENANT GROWTH RETURNED IN Q4

After six straight quarterly losses since the lockdown, countywide demand for space returned in the fourth quarter with positive net absorption across all five county submarkets.

There were 610,486 SF of net absorption in Q4. It was the third strongest quarter since 2015. The healthy end to the year reduced the countywide losses for 2021 to 711,560 SF, an improvement from the 1.3-million-SF contraction in 2020. In contrast to the Covid office downturn, Orange County office tenants shed 4.5 million SF from 2007-2009 following the financial meltdown.

One building was completed in the fourth quarter, a 91,032-SF expansion at shoemaker Vans’ Costa Mesa headquarters. Countywide, seven buildings totaling 1,059,385 SF are underway. 

Most tenant growth was in the 22.4-million-SF Central County submarket, which posted 262,055 SF of positive net absorption in Q4 and 269,085 SF for the year. It was the third straight quarter of positive absorption. There are two buildings totaling 206,500 SF under construction.

North County reported net tenant growth of 124,286 SF for 2021. The 14.5-million-SF submarket only had one negative quarter of 4,253 SF in Q2.

South County posted 151,937 SF of fourth-quarter growth but was in the red for the year by 394,281 SF. Four buildings totaling 403,679 SF are under construction.

The Airport submarket, the county’s largest with 43.9 million SF, posted 151,937 SF of growth in Q4. It was the first quarter of growth in the submarket in 18 months and cut the Airport’s losses to negative 677,377 SF for the year. Some 1.2-million SF went back on the market in 2020.  One building totaling 449,206 is underway.

Landlords in West County, the smallest submarket surveyed with 128 buildings totaling 9.6 million SF, perhaps have suffered the least in the pandemic.  The small submarket reported 23,914 SF of tenant growth in Q4 and demand is off less than 143,000 SF since the lockdown.

Average countywide rents are $2.65 per SF, down 3.3% from the $2.74 per SF peak in Q2 2020. Landlords typically are loathe to discount their published rents in periods of stress, opting instead to offer months of free rent or other off-the-book concessions. In the aftermath of the last recession, landlords were forced to cut asking rents 27% from the $2.60 peak reached in 2007. 

Four of the five largest leases in Q4 were for Irvine Company-owned office space. The three largest leases totaled 339,909 SF in buildings in the Irvine Spectrum. Lincoln Property signed a 72,010-SF tenant for its 870,000-SF Flight at Tustin Legacy. 

The largest sale of the fourth quarter was Amazon’s $258.82-per-SF cash purchase of a 39-year-old, 637,500-SF office building in Brea from Cerberus. In the Airport submarket, the largest deal was the $64-million purchase of 1301 Dove Street by Ocean West Capital Partners for $297.87 per SF.

Click here to read the full report

DEMAND IMPROVES BUT DELTA SOWS CAUTION

Office demand resumed in most of the county in the third quarter amid an economy straining to return to pre-pandemic normalcy, but tenants continued to shed blocks of space in the county’s largest market around John Wayne Airport.

Nearly 540,000 SF of Q3 growth was reported in the North, Central and South County markets, which total 64.1 million SF. South County posted 318,539 SF of net absorption, its strongest quarter in more than three years.

But the 43.6-million-SF Airport market, which accounts for 37% of the total county inventory, ended the quarter with an added 433,151 SF in the red. In the last six quarters more than 2 million SF have gone back on the market, pushing up the Airport’s vacancy rate from 11.4% to 16.5%.  In the 9.6-million-SF West County market, there were 108,519 SF of Q3 negative absorption.  

Countywide net absorption in the third quarter was negative 1,873 SF, a dramatic improvement from the 1.1 million SF of negative absorption in the first half and 2.6-million-SF retreat since Q1 last year. 

It was hoped early this year that vaccine distribution would shorten the pandemic and the economy appeared poised for a rapid re-opening. But vaccine resistance plus emergence of the more-infectious Covid-19 Delta variant set off a surge in serious infections.  This renewed concerns about employee health, causing some companies to delay office re-opening plans.

The largest Q3 lease was a direct deal for 90,000 SF on Von Karman Avenue in Irvine by health club operator Life Time. Additionally, the third quarter reported the most lease transactions since the lockdown, but three of the five largest deals were for sublease space, which climbed to an all-time high of 1.4% of total inventory.  By comparison, vacant available sublease space reached 1.2% of total inventory in 2008, the start of the great recession.  Of the 99 largest lease agreements in Q3, 14 were subleases. 

In most economic downturns landlords will offer concessions of free rent and increased tenant improvement allowances before cutting lease rates.  Additionally, building owners sometimes offer bonuses to procuring brokers.  Currently, some landlords are offering brokers up to $4 per SF for delivering new tenants. But building owners also have cut average asking rents nearly 9% for Class A space, which accounts for 42% of total inventory.  Overall, average rents have fallen 3.6%.

The largest building sale of the quarter was Opal Holdings’ $150.5-million purchase of the 435,177-SF City Tower in Orange, which translates to $346 per SF.  That was followed by the sale of the 181,500-SF Taco Bell World Headquarters in the Irvine Spectrum to Skyline Group for $624 per SF.

VACANCY HITS NEW LOW ON RED-HOT DEMAND

Industrial users leased 1.8 million SF of space in the third quarter. It was the most three-month net absorption in 17 years. The strong tenant expansion also drove down the vacancy rate to an all-time low.

The intensified demand reflects national trends. Businesses are reacting to pandemic-fueled e-commerce growth along with disruptions at several points in the global supply chain, affecting everything from raw materials to finished goods.  Locally, a growing armada of as many as 80 cargo ships has been anchored offshore with each awaiting a berth at the port of Los Angeles or Long Beach. 

There was healthy growth in each of the county’s four industrial markets, and Lee & Associates’ industrial specialists report that quality available space of virtually any size is drawing multiple offers.  Anything with a loading dock and 18 feet of clear height will excite user interest. It follows then that the lack of supply has anxious decision makers willing to accept space that leaves some boxes unchecked. 

The last four quarters countywide rents gained 11.6%, the most since 2016-17.

Lee & Associates surveyed 275.5 million SF in 8,257 buildings of at least 10,000 SF. 

North County, the largest market with 42% of county inventory, posted 825,995 SF of net absorption in the third quarter.  It was the second most growth since late 2004. The vacancy rate fell 50 basis points, settling at a record 1.2%. Year-to-date-net growth totaled 1.2 million SF.

There was 543,009 SF of net absorption in the 73-million-SF Airport market in the third quarter with 1.3 million SF of tenant expansion year to date. There has been more than 1.5 million SF in positive absorption over seven of the last eight quarters.

The vacancy rates in South County and West County each fell 50 basis points in the third quarter to 3.4% and 2.7% respectively.

In the 42.5-million-SF South County market there was 223,632 SF of tenant growth, which has been positive in three of the last four quarters and totaled 598,101 SF.   

In West County, which also includes 42.5 million SF of space, net growth in Q3 totaled 212,380 SF, the most since late 2018. Tenant growth has been in the black for four straight quarters, totaling 642,000 SF.

The largest lease in the quarter was for a 246,622-SF building on West Warner Avenue in Santa Ana by Cloud Mountain at 88 cents per SF for five years.

Investors paid $83.6 million, or $252 per SF for a 331,376-SF distribution building on Plaza Drive in Cypress.

MARKET IMPROVES ON VACCINES, ECONOMIC NEWS

With encouraging economic news and an effective vaccination campaign that dramatically reduced infections, the office market showed hints of stabilization as companies hold to their plans for post-Covid office re-openings in the third quarter.

Second-quarter net absorption was negative 169,466 SF, a significant improvement from the negative 2.3-million-SF total of the previous three quarters. But for the new space included in the 117.4-million-SF inventory in Q2, net growth would be in the black. Four buildings totaling 218,513 SF were delivered in Q2 and five buildings totaling 829,738 SF remained under construction.

So far in the pandemic, vacancies have increased about 3.5 million SF, which includes 693,020 SF in nine new buildings.  This has combined to push up the vacancy rate from 10.6% in Q1 last year to 13.6% at the end of the first half. Vacancies are the highest since Q2 2012, amid the recovery from the financial crisis and recession when vacancy peaked at 17.8% in 2010.  

For another historical comparison, from 2007 through 2009 empty space increased about 6 million SF. That included 3 million SF in 27 buildings delivered during the period.  Much of the oversupply of space was leased up with 4.6 million SF of absorption by 2012.

Asking rents since early last year have declined an average of 3.6% to 2018 levels.  Landlords, as is typically the practice during times of stress, are offering free rent and other concessions rather than reduce the lease rate. 

Second-quarter net absorption was in the red in Orange County’s five geographic zones.

Landlords have suffered the least in the 14.5-million-SF North County market, whose vacancy rate is 6.8%, up only 40 basis points since Q1 of last year. There was 4,253 SF of negative net absorption in Q2 but demand year to date is 78,942 SF.

West County, the smallest market with 9.6 million SF of inventory, posted 24,382 SF of negative net absorption in Q2 but is 36,332 SF in the black in the first half.  The vacancy rate has climbed from 8.4% to 11.3% since Covid.

Central County’s 22.5 million SF of inventory has seen 113,567 SF of contraction in the first half but only 2,000 SF of negative absorption in Q2.

Tenants in the 43.7-million-SF Airport market shed 125,307 SF of space in Q2 for a total of 416,263 SF of negative absorption in the first half. Three buildings totaling 580,238 are under construction. 

Click here to read the full report.

Q2 DEMAND IS STRONGEST IN SIX YEARS

Encouraged by effective vaccine distribution and improved economic data, companies in the second quarter leased the most industrial space in a three-month period in Orange County since 2015.

Net absorption totaled more than 1.1 million SF in Q2 and more than 2 million SF since the third quarter of last year.  It’s been 23 quarters since growth topped 1 million SF.  In the last three quarters the vacancy rate has fallen 70 basis points to 3%. This is despite a long-term supply shortage that appears likely to become permanent. 

There are fewer than 250 vacant buildings available, and the current 475.5 million SF of inventory has declined 1.3% over the last 10 years as buildings give way largely to apartment development.  But there are occasional developments of headquarters-distribution buildings in random infill locations.  For example, a 1.5-million-SF, four-building spec project broke ground in Q2 on the old Kimberly-Clark site in Fullerton.

Countywide, rents in the second quarter grew an average of 9% year over year.

Tenant demand in Q2 was strongest in the 117.1-million-SF North County market, the county’s largest. Users leased 812,556 SF of space, the largest quarterly total since the first quarter of last year and second most since 2004.  The gain reduced the vacancy rate across Anaheim, Brea, La Habra, Fullerton, Buena Park, La Palma, Placentia and Yorba Linda to 1.9% from 2.6% in Q1.  One of the largest North County leases in Q2 was a 10-year deal for 108,125 SF in Brea by IDI Logistics.

Second-quarter net absorption totaled 213,058 SF in the 73.1-millon-SF Airport market.  It was the strongest first half on record with a year-to-date total of 779,820 SF in the market that includes Costa Mesa, Fountain Valley, Irvine, Newport Beach, south Santa Ana and Tustin.  Three buildings totaling 355,771 SF were delivered in the first half.  The vacancy rate settled at 4%.

Tenant expansion in the 42.4-million-SF West County market totaled 110,927 SF in Q1.  It was the third straight quarter of growth totaling 429,554 SF of net absorption in the industrial neighborhoods of Cypress, Huntington Beach, Los Alamitos, Stanton, Seal Beach and Westminster.  The vacancy rate fell from 3.5% to 3.2%.

With 42.6 million SF of total inventory South County – which extends from the Irvine Spectrum south to San Clemente – was the only submarket posting negative net absorption in Q2 as tenants shed 46,471 SF of space. Nevertheless, the largest overall lease of the quarter was a 127,030-SF lease in the Irvine Spectrum by medical device maker Masimo Inc.

Click here to read the full report.

Newport Beach Calif. – April 2021 - The 16,000 square foot industrial building located at 1140 North Tustin Avenue, Anaheim, CA sold to Hunter Food Inc. for $4,160,000. Hunter Food Inc. was represented by Jonathan Mejia and Jim deRegt of Lee & Associates – Newport Beach and the Seller, Aquarian Coatings Corporation, was represented by Johnny Eubanks of Lee & Associates - Orange.

Hunter Food Inc. is a meat and poultry processing company serving their customers since 1991. This purchase is an expansion of their current Anaheim facilities. They plan to convert the warehouse area into freezer / cooler space. Given the proximity to their current operations and Anaheim’s competitive marketplace; the expansion for Hunter Food Inc. was an obvious choice.

Newport Beach Calif. – April 2021 - The 31,206 square foot industrial building located at 3601 West Pendleton Avenue, Santa Ana, CA leased to Goodwill Industries of Orange County. Goodwill was represented by Matt Christensen of Lee & Associates – Newport Beach and the Landlord, 3601 Pendleton, LLC was represented by Morgan Hill of Voit Commercial.

Goodwill’s previous facility located at 2320 Red Hill, Santa Ana was recently rezoned and approved for a new residential project. In light of the rezoning, coupled with the significant increase in donations due to Covid-19, Goodwill sought a long-term solution to trailer storage and donated goods sorting. 3601 Pendleton is located adjacent to another Goodwill facility located at 2250 S. Yale Street.  3601 Pendleton was recently completely renovated.

About Lee & Associates

Lee & Associates is a commercial real estate brokerage, management and appraisal services firm. Established in 1979, Lee & Associates has grown its service platform to include offices in the United States and Canada. Lee & Associates provides superior market intelligence in office, industrial, retail, investment and appraisal to meet the specialized needs of our clients. For the latest news from Lee & Associates, visit lee-associates.com or follow us on Facebook, LinkedIn, Twitter and Link, our company blog.

TENANTS CAUTIOUS AHEAD OF REOPENING

The first quarter was another period of ailing tenant demand as many companies continued to assess their post-Covid operational needs in an economy that looks poised to rebound this year.

Compared to the negative 1.13 million SF of net absorption in the closing quarter of 2020, 776,138 SF of negative absorption was posted in the first quarter as vaccine distribution was well underway and re-opening of the state by mid June was announced by the governor.

One bright spot in Q1was a lease by Anduril – a startup surveillance and security company founded by local tech mogul Palmer Luckey – of a record 639,206 SF of creative space on 24-acres. The office campus is on the Costa Mesa site of the former Los Angeles Times offices.  Luckey was 22 years old in 2014 when Facebook bought his Oculus virtual reality gaming company for $3 billion. Plans are for Anduril to relocate its 350 jobs from Irvine to the new offices in the second half of 2021 when many companies expect to fully reopen offices.

Also notable in the first quarter was the sharp reduction in new sublease space hitting the market, down from 678,839 SF over the second half of 2020 to 127,177 SF in Q1.  The total of vacant sublease space is 1.76 million, which includes 806,000 SF of vacant second-hand space added since the lockdown.

Of the nation’s 80 largest office markets, Orange County has the 65th highest vacancy rate and is 67th in 12-month absorption.

There has been a slight decline in asking lease rates since the lockdown as landlords largely have been standing pat on rents, opting instead to reduce effective rates with free rent and other concessions.  Nevertheless, with office users currently enjoying the upper hand, it follows that many building owners and managers have redoubled their tenant retention efforts. 

There were declines in first-quarter tenant demand in the Airport, South County and Central County office markets which represent nearly 80% of the county’s 117.4-million-SF total inventory.  

The largest decline was in the 26.9-million-SF South County market.  After closing 2020 with a slight net gain in tenant growth, companies shed 529,857 SF in the first quarter.  The year-over-year vacancy rate is up from 11.4% to 15.1%, which includes delivery of four buildings totaling 414,000 SF. Four buildings totaling 217,510 SF are under construction.

There was 292,623 SF of negative Q1 net absorption in the 43.7-million SF Airport market, an improvement from the previous two quarters when absorption was 1.26 million SF in the red.

In the 22.5-million-SF Central County market negative net absorption in Q1 totaled 97,567 SF.   

There was 83,195 SF of positive Q1 absorption in the 14.5-million-SF North County market and 60,174 SF of growth in the 9.7-million-SF West County market.

Click here to read the full report

RENTS GAIN ON STRONG TENANT GROWTH

Strong demand for industrial space continued in the first quarter, pushing down the vacancy rate to 3.3% and lifting lease rates to new highs as competition intensified for a short supply of space.  

Net absorption in Q1 totaled 672,317 SF, the second highest quarterly total in five years.  Countywide, tenant growth has totaled more than 1 million SF in the last six months and 1.8 million SF since the second half of 2019, showing confidence among industrial users despite the pandemic.

But with a vacancy rate less than 4% since 2014, companies planning for growth have faced declining options in quality space for sale or lease.  In recent years, buildings for sale frequently attracted multiple offers.   That trend continues today. Similar levels of interest for the first time are showing up in buildings for lease. A 35,000-SF building for lease in Tustin recently drew offers from five different users.

Asking lease rates are up countywide 6.4% year over year and have gained 40% in the last five years.  In North County, the county’s largest market with 116.8 million SF, asking rents are up nearly 12% year over year and 56% since 2016.

Positive first-quarter net absorption was reported in three of the county’s four markets whose inventory combines for 275.5 million SF of space.

The 73.4-million-SF Airport market posted 664,389 SF of Q1 net absorption, led by a 166,722-SF lease in the Shea Business Center in Santa Ana.  It’s the fifth and largest lease completed 500,000-SF project, the Airport market’s largest development in a decade.  Nevertheless, the Airport market has not grown in year-over-year average asking rents.

There were 172,955 SF of Q1 net absorption in 42.5-million-SF South County market.  Tenant growth pushed down the vacancy rate to 3.8%.  Average asking rents gained 5.5% year over year.

In the 42.4-million-SF West County market there were 120,582 SF of net absorption and the vacancy rate settled at 3.5% and asking rents gained an average of 13% year over year.

North County reported 287,799 SF of Q1 contraction.  Nevertheless, its 2.5% vacancy rate is the lowest in the county and asking rents were up nearly 12% from the same period last year.

There are seven buildings totaling 890,518 SF under construction and most are pre-leased.

Click here to read the full report

CURRENT SWOON PALES AGAINST LAST RECESSION

Tenants shed 1.14 million SF of office space in the fourth quarter. It was the third straight quarter of negative net absorption and increased the year’s retreat to 1.7 million SF. 

By comparison, however, 2020’s contraction was far less severe than the punishing effects of the last recession. The financial crisis produced 2.8 million SF of negative absorption in 2009 and negative 4.9 million SF over 12 quarters ending in Q3 2010.  

Additionally, the current recession looks to be mercifully cut short by vaccine deliveries and increased probability of more federal economic stimulus. Many companies have begun planning to reopen offices by the third quarter. Other office users are evaluating how much remote working will blend into their operational culture.  Schools everywhere are planning to reopen in the fall.

There is consensus among national analysts, including from the Urban Land Institute, that in some ways the pandemic is an accelerant, adding fuel to existing trends dramatically affecting commercial property.  Skyrocketing online sales during the lockdown, for example, have intensified already-strong demand for last-mile distribution facilities.

Among the latest office trends involves more short-term, flexible co-working space. Although it still accounts for a small share of overall office use, flexible, shared space is being viewed more approvingly by companies assessing their long-term plans. Also, banks are reducing their footprints as customers have become more comfortable with mobile banking.

It’s no surprise that the majority of the space in the red was in the 43.7-million-SF Airport submarket at year end. With most of the county’s premium office buildings, the Airport submarket is the county’s largest with a 37% share of the inventory. The North, West and Central County submarkets total 46.7 million SF and combined for negative 410,156 SF.  The 26.5-million-SF South County submarket gained 8,737 SF for the year, posting a vacancy rate of 12%.

In another comparison with the last recession, the 1.3 million SF of Airport space that went back on the market in 2020 was 27% less than in 2009. The year-end vacancy rate was 14.9% in the Airport submarket.  

The vacancy rate in the 22.3-million-SF Central County submarket settled at 13.2%, and negative absorption for the year totaled 166,816 SF.

At the end of 2020, 2,180,156 SF were listed as available for sublease, up from 514,611 SF at the end of the first quarter. 

Sublet space available countywide at the end of 2020 totaled 3,282,533 SF, about 16% of available space. That was a 789,514- SF increase of second-hand space since Q1. Much of the sublease total consists of large blocks of space closed by corporate mandate that will be removed from the grey market inventory as employee inoculations mount.  At its peak in the last recession sublet space also totaled 16% of available space, falling to 8% by late 2010.

Click here to read the full report

TENANT DEMAND SHRUGS OFF RECESSION

The 24,600 square foot industrial building located at 625 S. Fee Ana Street, Placentia sold for $5,227,500.  The Buyer, PKR Investments, was represented by James deRegt and Jonathan Mejia of Lee & Associates – Newport Beach. The Seller, Temporary Power Solutions, was represented by Keith Greer of CBRE.

After completing significant renovations, the Buyer intends to occupy the property and will operate as P5 Graphics.  The sale was completed with Seller financing and was in escrow for 60 days.

The Buyer intends to occupy roughly one-third of the building and retain tenants in the remaining space.  The property was placed on the market in August 2020, was in escrow within 3 weeks, and closed escrow in a total of fewer than 60 days.

COVID HITS THE AIRPORT MARKET

Companies in the Airport market shed a near-record volume of space in the third quarter, forcing the countywide office vacancy rate up 73 basis points to 11.6%, as the economic shock of the Covid pandemic rippled through the county.

The Airport market, which has 37% of the county’s 117- million-SF inventory, was 724,151 SF in the red in the third quarter, the most negative absorption since Q4 2007.  It drove up the countywide negative absorption total to 790,568 SF for the quarter and negative 657,817 SF year to date. Countywide, net absorption gains averaged 670,696 SF annually over the previous three years.

Overall rent growth was weak prior to Covid, gaining 3% since 2017, and year-over-year growth was nil.  Nevertheless, despite continued uncertainty and sharply reduced leasing activity, Lee & Associates office specialists are not yet seeing Covid discounts amid questions on whether and how much eviction moratoriums are propping up the market.

Only two of the county’s five markets reported Q3 growth.

There was 45,374 SF of net absorption in South County, whose year-to-date total of 262,657 SF is the most in the county.  There was 1,317 SF of net growth reported in North County, which has 14.6 million SF of office space and a 6.2% vacancy rate, the county’s lowest.

With 101,968 SF of negative absorption in Q3, the 22-million-SF Central County market has contracted in nine of the last 11 quarters, putting 474,820 SF back on the market. Nevertheless, there was 5.2% year-over-year rent growth.

Negative Q3 absorption totaled 11,139 SF in the small 9.6-million-SF West County market.  Tenants in West County buildings have expanded 56,811 SF this year.  Despite its 6.9% vacancy rate, average rent growth has been virtually flat the last two years.

The five largest blocks of space to come back on the market at the Airport in the third quarter totaled more than 260,000 SF and ranged from 22,000 SF to 75,000SF.  There has been virtually no growth in average rents since 2017 in the Airport market, and the Q3 total of sublet space available, 357,356 SF, is the most since 2006.  

The county’s biggest lease of the year was signed in August.  Panasonic Avionics leased 260,000 SF for 1,600 headquarters employees at Park Place at Michelson Drive and Jamboree Road in Irvine.  The company – which makes in-flight passenger video and communications gear – is moving from about 300,000 SF across several low-rise buildings in Lake Forest into as many as five of Park Place’s 13 buildings.

The largest sale of the quarter was the $54.8-million purchase of the 10-story 4 Hutton Centre by LaSalle Investment Management. The 10-story building traded for $252.57 per SF.  The building last sold in 2011 for $37 million.

Click here to read the full report

DESPITE COVID, LEASING ACTIVITY GAINS

The Covid-19 pandemic eased its grip on the industrial market as third-quarter leasing activity bounced back along with slight improvement in overall absorption. Rental rates in 2020 have increased at a slower rate than any year since 2008. 

Net absorption was 150,642 SF in the red in the third quarter, but that was an improvement from Q2, when tenants shed 359,636 SF and as Orange County and much of the nation were in lockdown.  There were 564 lease transactions in the third quarter, the most in 10 quarters. It was a turnaround from the 388 deals in Q2, the fewest quarterly leases since the 2008-09 recession.

Orange County’s total inventory is 274.9 million SF.  The third quarter’s overall 3.6% vacancy rate is up from the 2.5% record low of late 2016, but the county remains among the nation’s tightest major markets. Fairly priced buildings for sale continue to draw multiple offers.

Because access to the ports of Los Angeles and Long Beach is vital to many industrial users, it’s worth noting that the twin ports – after reporting a 12% reduction in cargo during the first half of the year – posted record-breaking container traffic in July and August.  Port officials attributed the surge to pent up demand for imported consumer goods.

Year-to-date countywide net absorption through September was 347,362 SF, thanks to strong first-quarter tenant demand, while net absorption for the first nine months of last year was negative 1.14 million SF.  Year-over-year rent growth averages 3.7% and has been flat since Q1.

Overall third-quarter demand was down in three of the county’s four markets.  

North County – the largest market with 42% of the county’s industrial inventory across nine cities that include Anaheim, Buena Park, Brea, Fullerton and Placentia – reported 393,480 SF of net absorption in Q3.  

The largest new lease of the quarter in the county was for a 170,692 SF building on East 183rd Street in the North County submarket of La Palma.  Lee & Associates’ surveys show that North County demand is up nearly 1.1 million SF so far this year.

The 43-million-SF West County market posted the biggest loss of Q3 with 288,080 SF of negative net absorption. Tenants shed space for the third straight quarter, bringing the year-to-date total to negative 864,891 SF.

The 42-million-SF South County market reported 197,032 SF of negative absorption in Q3, bringing the negative year-to-date total to 404,450 SF. 

The 73.3-million-SF Airport market ended the quarter with 59,010 SF of space going back on the market. The 4.4% vacancy rate is down 20 basis points on 526,833 SF of positive absorption year to date.

VIRUS THREATENS OFFICE GROWTH