industrial demand shrugs off election-year...
TRANSCRIPT
Despite a greater than expected drop in leasing activity in the fourth quarter of 2016, demand for space remained strong enough to drive down the industrial vacancy rate deeper into record territory in each of the county’s four submarkets.
The last three-month period of 2016 closed with 631,549 sq. ft. of positive net absorption, pushing down the countywide vacancy rate to 2.4%. When added to the 701,391 sq. ft. that came off the market in Q3 – offsetting weakness in the first half – net absorption for the year totaled 960,014 sq. ft.
Historically, the volume of commercial real estate transactions drops off at the end of each calendar year, particularly so when there is the added uncertainty of a general election. But the 402 leases in Q4 totaled 32.6% less than the 597 average of fourth-quarter deals since 2011. Moreover, there were 36.6% fewer deals in Q4 than the 634 transactions in Q4 2012, when the previous election was held.
The improving economy coupled with the continuing gradual shrinking inventory of industrial buildings has helped drive lease rates back virtually to pre-recession highs. There are 89 fewer industrial buildings in the OC inventory since 2008. The reduction totals about 4.5-million-sq.-ft., a 1.6% decline.
Among the county’s four broad submarkets, whose inventories total more than 278 million sq. ft., demand has been greatest in West County. Net absorption in the last three quarters totaled more than 1 million sq. ft., driving West County’s vacancy rate down to 1.1%. Lee & Associates specialists in the field attribute West County’s strong absorption to the eight-city submarket’s comparatively low lease rates and its proximity to the 405 Freeway, the commerce-dense South Bay market and twin ports of Long Beach and Los Angeles.
The North County submarket, the county’s largest with 42% of OC’s total 278-million-sq.-ft. inventory, posted 478,156 sq. ft. of positive absorption in 2016, closing out the year with a 2% vacancy rate. North County has lost 1.36 million sq. ft. of space largely to multifamily development since 2008. Lately, Shopoff Realty is angling to raze a nearly 400,000-sq.-ft. building in Anaheim to redevelop the 20-acre property on South Street near city hall with 530 homes and apartments. On the flip side, Western Realco has filed plans to develop an eight-building, 978,665-sq.-ft. project on the former Beckman headquarters site in Fullerton.
The 74.3-million-sq.-ft. Airport submarket, which includes Newport Beach, Costa Mesa, Fountain Valley, Santa Ana and the Irvine Business Complex, lost four buildings totaling 474,226 sq. ft. to redevelopment, enabling its vacancy rate to fall to 3% despite putting 149,886 sq. ft. back on the market in 2016.
Industrial Demand Shrugs Off Election-Year UncertaintyMARKET OVERVIEW(Change from last quarter)
AVAILABILITY - 4.5%Up from 4.0% last quarter
*All numbers are based on industrial buildings 10,000 sq. ft. and larger.
VACANCY - 2.4%Down from 2.6% last quarter
ABSORPTION - 631,549 SQ. FT.Down from 701,391 SF last quarter
AVERAGE LEASE RATE - $0.87 NNNUp from $0.85 last quarter
L E E & A S S O C I A T E S - I R V I N E / N E W P O R T B E A C H / O R A N G E I N D U S T R I A L M A R K E T R E P O R T
QUARTER IN REVIEW4TH QUARTER 2016
The Orange County Industrial Market Report is published quarterly by the Lee & Associates’ Irvine, Newport Beach and Orange offices.
2017 Lee & Associates, Inc. C 1Q13 2Q13 3Q13 4Q13 1Q144Q12 2Q14 3Q14
AVAILABILITY RATE VS VACANCY RATE
4Q14 1Q15
Availability RateVacancy Rate
2Q15 3Q15 4Q15 1Q16 2Q16Source: CoStar
18.0%
15.0%
12.0%
9.0%
6.0%
3.0%
0.0% 3Q16 4Q16
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Q42 0 1 6
BY SUBMARKET, INCLUDING SUBLET SPACEINCLUDING SUBLET SPACE
1,300,000
1,100,000
900,000
700,000
500,000
300,000
100,000
0
-100,000
-300,000
-500,000
Sq. Ft.
NORTH COUNTY
WEST COUNTY
AIRPORT AREA
SOUTH COUNTY
OUTLYING OC
900,000800,000700,000600,000500,000400,000300,000200,000100,000
0-100,000-200,000-300,000-400,000
Sq. Ft.
COUNTY WIDE NET ABSORPTION YTD NET ABSORPTION
250
225
200
175
150
125
100
75
50
25
0
# of Deals
NUMBER OF LEASES EXECUTED FOR THE QUARTER BY SUBMARKET
DIRECT LEASESUBLEASE
Outlying OCNorth County West County Airport Area South County
Source: CoStarSource: CoStar
Source: CoStar
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
VACANCY RATE BY QUARTER
Percent
Source: CoStar
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Percent
BY SUBMARKET - INCLUDING SUBLET SPACE
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%Outlying OCNorth County West County Airport Area South County
VACANCY RATE
Source: CoStar
0.0%
UNEMPLOYMENT RATECaliforniaOrange County
Percent
Source: EDD
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%10/15 11/15 12/15 01/16 02/16 03/16 04/16 05/16
2.1%
3.0%3.3%
06/16 07/16 08/16
3Q16
3Q16
4Q16
4Q16
09/16 10/16 11/16
1.1%
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Lease Transactions 4Q 16PROPERTY SF TENANT LANDLORD REPRESENTING BROKERS
10900 WalkerCypress, CA
95,900 LTP Machines Newport Asset Mgmt. Group, LLC
Kurt Bruggeman, Phil Cohen & Ryan Swanson represented the Landlord.
928 VermontAnaheim, CA
64,800 Michael Reese Enterprises, Inc.
Jerrico Ventures, Inc. David Williams represented the Landlord.
15282 Newsboy CircleHuntington Beach, CA
57,914 Newmar Chalabian Family Trust Jim Snyder represented the Tenant.
Sale Transactions 4Q 16PROPERTY SF BUYER SELLER REPRESENTING BROKERS
14821 Artesia BoulevardLa Mirada, CA
88,937 East Sunrise Investment, LLC
Outlook Resources, Inc.
Ryan Swanson & Jeff Bischofberger represented the Seller. Kevin Quick represented the Buyer.
22600 Savi Ranch ParkwayYorba Linda, CA
84,396 Savi Industrial, LLC Esar, Inc. Dale Camera, Jason Helmick & Kenah Cooper represented the Buyer.
1160 N. Cosby WayAnaheim, CA
27,020 DHP Investments, LLC Katherine Cathay & Sharon Tins
Johnny Eubanks & Scott Seal represented the Buyer.
928 VermontAnaheim, CA
14821 Artesia BoulevardLa Mirada, CA
22600 Savi Ranch ParkwayYorba Linda, CA
1160 N. Cosby WayAnaheim, CA
COMPLETED LEE & ASSOCIATES TRANSACTIONS
BY SUBMARKET
NORTH COUNTY
WEST COUNTY
AIRPORT AREA
SOUTH COUNTY
OUTLYING OC
AVERAGE NNN LEASE RATE
Source: CoStar
$1.20
$1.10
$1.00
$0.90
$0.80
$0.70
$0.60
$0.00
NNN
$0.95
$0.90
$0.85
$0.80
$0.75
$0.70
$0.65
$0.60
NNN
AVERAGE NNN LEASE RATES BY QUARTER
Source: CoStar
2Q14 3Q141Q143Q13 4Q13 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
15282 Newsboy CircleHuntington Beach, CA
3Q16 4Q16
10900 WalkerCypress, CA
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Bldg Count
SFRBA
Total SFAvailable
Avail.Rate
Total SFVacant
Total Vac. Rate
Direct SFVacant
Direct Vac. Rate
NetAbsorption
YTD Net Absorption
SF AvailSublease
SF Vacant Sublease
Avg Asking Lease Rate
SF UnderConstruction
BY CITY
Aliso Viejo 57 1,742,524 43,080 2.5% 23,952 1.4% 20,777 1.2% 9,470 62,522 10,025 3,175 $1.22 - 0 -
Anaheim 1,441 45,892,163 1,247,906 2.7% 616,463 1.3% 604,848 1.3% 6,327 566,131 118,700 11,615 $0.83 - 0 -
Brea 299 13,002,136 819,434 6.3% 819,915 6.3% 781,476 6.0% (45,541) (148,192) 6,740 38,439 $0.70 - 0 -
Buena Park 206 14,038,050 551,337 3.9% 40,024 0.3% 21,845 0.2% 51,677 139,231 408,582 18,179 $1.00 - 0 -
Capistrano Beach 1 35,486 - 0 - 0.00% - 0 - 0.00% - 0 - 0.00% - 0 - - 0 - - 0 - - 0 - - - 0 -
Costa Mesa 397 10,722,704 787,197 7.3% 512,336 4.8% 483,399 4.5% (53,762) (57,534) 81,223 28,937 $1.08 - 0 -
Cypress 102 6,533,840 688,530 10.5% 84,751 1.3% 84,751 1.3% 196,194 179,112 31,309 - 0 - $0.76 - 0 -
Dana Point 1 12,000 - 0 - 0.00% - 0 - 0.00% - 0 - 0.00% - 0 - 2,106 - 0 - - 0 - - - 0 -
Foothill Ranch 50 3,594,399 334,169 9.3% 245,628 6.8% 214,725 6.0% (25,353) (177,036) 63,602 30,903 $0.88 - 0 -
Fountain Valley 206 5,070,499 147,119 2.9% 80,718 1.6% 80,718 1.6% 54,299 142,868 1,200 - 0 - $0.86 - 0 -
Fullerton 355 20,160,204 735,698 3.6% 764,893 3.8% 744,649 3.7% (16,738) (129,296) 205,984 20,244 $0.62 181,069
Garden Grove 379 12,891,231 522,007 4.0% 147,673 1.1% 140,913 1.1% 35,812 65,457 8,340 6,760 $0.70 - 0 -
Huntington Beach 553 15,625,691 514,852 3.3% 195,059 1.2% 191,509 1.2% 316,335 249,574 3,550 3,550 $0.70 41,668
Irvine 1,024 38,634,359 2,280,203 5.9% 1,023,789 2.6% 988,682 2.6% (87,905) 253,620 148,668 35,107 $1.19 51,450
La Habra 105 3,192,146 73,348 2.3% 32,865 1.0% 32,865 1.0% 8,710 3,422 - 0 - - 0 - $0.79 - 0 -
La Palma 17 1,859,689 131,280 7.1% - 0 - 0.00% - 0 - 0.00% 70,200 111,934 - 0 - - 0 - $0.63 - 0 -
Ladera Ranch 1 21,784 - 0 - 0.00% - 0 - 0.00% - 0 - 0.00% - 0 - - 0 - - 0 - - 0 - - - 0 -
Laguna Beach 3 51,768 3,280 6.3% 3,280 6.3% 3,280 6.3% - 0 - - 0 - - 0 - - 0 - - - 0 -
Laguna Hills 110 2,192,064 78,156 3.6% 20,767 0.9% 20,767 0.9% 16,057 47,451 - 0 - - 0 - $1.27 - 0 -
Laguna Niguel 38 753,408 15,425 2.0% 14,057 1.9% 14,057 1.9% - 0 - (16,948) 1,368 - 0 - $1.55 - 0 -
Laguna Woods 1 20,178 - 0 - 0.00% - 0 - 0.00% - 0 - 0.00% - 0 - - 0 - - 0 - - 0 - - - 0 -
Lake Forest 181 5,037,928 354,473 7.0% 369,627 7.3% 360,220 7.2% (103,003) (46,032) 14,966 9,407 $0.91 - 0 -
Los Alamitos 107 3,088,461 63,011 2.0% 24,078 0.8% 24,078 0.8% 9,444 (8,047) 17,609 - 0 - $1.61 - 0 -
Mission Viejo 55 1,290,646 48,923 3.8% 26,049 2.0% 24,769 1.9% 21,242 (15,208) 1,280 1,280 $1.16 - 0 -
Newport Beach 51 1,065,008 15,573 1.5% 15,573 1.5% 15,573 1.5% 4,722 8,241 - 0 - - 0 - $1.19 - 0 -
Orange 567 14,272,051 359,911 2.5% 111,508 0.8% 82,388 0.6% (13,974) 45,132 48,320 29,120 $0.88 - 0 -
Placentia 170 4,220,212 73,409 1.7% 56,605 1.3% 56,605 1.3% (34,116) 9,045 - 0 - - 0 - $0.73 - 0 -
Rancho Santa Margarita 84 2,738,141 113,548 4.1% 18,617 0.7% 12,226 0.4% 19,726 (14,814) 6,391 6,391 $0.82 - 0 -
San Clemente 120 2,780,954 225,069 8.1% 97,027 3.5% 71,027 2.6% (14,496) (14,623) 42,908 26,000 $1.10 - 0 -
San Juan Capistrano 78 1,762,915 43,151 2.7% 40,115 2.5% 38,865 2.5% (15,960) 70 2,900 1,250 $1.21 - 0 -
Santa Ana 1,116 31,377,502 1,377,037 4.4% 627,966 2.0% 598,503 1.9% 257,748 (96,870) 100,257 29,463 $0.73 - 0 -
Seal Beach 13 986,466 88,507 9.0% - 0 - 0.00% - 0 - 0.00% - 0 - - 0 - - 0 - - 0 - - - 0 -
Stanton 74 1,388,197 8,992 0.6% - 0 - 0.00% - 0 - 0.00% - 0 - 2,880 - 0 - - 0 - $0.82 - 0 -
Tustin 188 7,461,538 554,625 7.4% 506,445 6.8% 500,745 6.7% (14,698) (239,108) 7,692 5,700 $1.06 - 0 -
Westminster 85 2,419,281 21,258 0.9% 34,095 1.4% 34,095 1.4% (12,007) 41,243 - 0 - - 0 - $0.83 - 0 -
Yorba Linda 84 2,243,878 156,777 7.0% 71,572 3.2% 54,092 2.4% (8,861) (6,317) 17,480 17,480 $1.19 - 0 -
Orange County Totals 8,319 278,179,501 12,477,285 4.5% 6,625,447 2.4% 6,302,447 2.3% 631,549 960,014 1,349,094 323,000 $0.87 274,187
Bldg Count
SFRBA
Total SFAvailable
Avail.Rate
Total SFVacant
Total Vac. Rate
Direct SFVacant
Direct Vac. Rate
NetAbsorption
YTD Net Absorption
SF AvailSublease
SF Vacant Sublease
Avg Asking Lease Rate
SF UnderConstruction
BY AREA
North Orange County 3,226 117,010,840 4,017,820 3.4% 2,513,845 2.1% 2,378,768 2.0% (52,516) 479,156 805,806 135,077 $0.72 181,069
West Orange County 1,330 44,774,622 2,038,437 4.5% 485,656 1.1% 475,346 1.1% 615,978 642,153 60,808 10,310 $0.72 41,668
Airport Area 2,504 74,310,708 3,789,803 5.1% 2,224,541 3.0% 2,132,232 2.9% 186,584 (149,886) 226,060 92,309 $0.89 51,450
South Orange County 1,258 41,896,426 2,631,225 6.3% 1,401,405 3.3% 1,316,101 3.1% (118,497) (11,409) 256,420 85,304 $1.12 - 0 -
Outlying Orange County 1 186,905 - 0 - 0.00% - 0 - 0.00% - 0 - 0.00% - 0 - - 0 - - 0 - - 0 - - - 0 -
Orange County Totals 8,319 278,179,501 12,477,285 4.5% 6,625,447 2.4% 6,302,447 2.3% 631,549 960,014 1,349,094 323,000 $0.87 274,187
No warranty or representation is made to the accuracy of the foregoing information. Terms of sale or lease and availability are subject to change or withdrawal without notice.
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AIRPORTCosta Mesa, Fountain Valley, Irvine, Newport Beach, Santa Ana, Tustin
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SOUTH
AIRPORT
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WESTOUTLYING
MARKET FORECAST:Chapman University economists recently predicted that Orange County job growth will outperform the nation and state in 2017 with jobs in the construction and in-formation services sectors leading the way. Of concern, they said, was continuing decline in local housing affordability.
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